Iran deal: ‘No happy ending’ for Middle East

As the deadline for a deal between Iran and major world powers over its nuclear program looms large, analysts are debating what opportunities or risks a deal could open up in Iran, the Middle East and beyond.

Representatives from the U.S., U.K., France, Germany, Russia and China (the so-called P5+1) met once again Tuesday with Iranian officials in Lausanne, Switzerland, in an effort to negotiate a deal ahead of a midnight deadline.

It comes after a 12-year standoff between the UN Security Council and Iran following claims that the country was trying to build a nuclear arsenal.

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Tehran, Iran
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Tehran, Iran

If a deal is reached before the end of the day, it could pave the way for a lifting of international sanctions placed on Iran, which have restricted oil exports and severely damaged its economy.

Farouk Soussa, chief Middle East economist at Citi, told CNBC on Tuesday that if sanctions were lifted, its well-educated population and established industrial base could flourish.

Soussa said he spoke with many clients in Dubai, who were waiting for Iran to "open up" and that the country was a "massive opportunity" for the region.

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"I do think that once this market opens up it won't just be that Iran benefits, it will be the Middle East generally and particularly Dubai, where I think a lot of companies are going to base themselves in order to do business in Iran. … I also think Oman is going to benefit hugely," he told CNBC Europe's "Squawk Box."

'Massive opportunity'

Iran was "absolutely desperate for a deal" from an economic point of view, Soussa added.

"Bad news today would probably mean that the Iranian rial would continue to slide precipitously… These sanctions are crippling, they are really hurting the Iranian economy and are becoming an existential threat to the Iranian regime," he said.

Despite high hopes that a deal could revive Iran's economy, there are still doubts that a deal can be reached Tuesday, with some officials reportedly saying they thought there was only a 50-50 chance of success.

Although the P5+1 set the Tuesday deadline, the technical details do not have to be finalized until June 30.

No happy ending?

Predictably, the potential deal has attracted a lot of criticism, particularly as violence flares in Yemen where rebels, allegedly backed by Iran, take control of key parts of the country, despite Saudi-led airstrikes against them.

Against this background of rising tensions in the Middle East, predominantly Sunni nations, such as Saudi Arabia, feel "betrayed" by Western nations trying to seek a deal with Shia-majority Iran, Soussa said.

But any belief that a deal could create more stability in the Middle East was misplaced, he added.

"There is a view that a deal will mean a warming up of relations across the Gulf and that, all of a sudden, the Sunni-Shia rivalries (such as those between Iran and Saudi Arabia) will go away and everyone will be running away into the sunset. I think that's completely wrong," Soussa warned.

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He said the negotiations could drive the Saudis to develop a coalition with Egypt and others, in an effort to create a Sunni front in the face of increasing Iranian influence in the region.

"So rather than making sectarian or political tensions diminish in the region, I think a deal could enflame those tensions," he added.

US-Israeli tensions

Israel is another big opponent to the deal, which it believes could endanger its own security as Iran is seen as its biggest threat.

On Tuesday, Israel's Prime Minister Benyamin Netanyahu said in a statement: "One cannot understand that when forces supported by Iran continue to conquer more ground in Yemen, in Lausanne they are closing their eyes to this aggression. … Israel is not closing our eyes and we will continue to act against every threat."

In the U.S. too, Republican lawmakers are angry that a decision to lift sanctions on Iran by the White House could bypass Congress.

Ben White, chief economic correspondent at political website Politico and a CNBC contributor, told CNBC that any deal could have domestic repercussions in the U.S.

"The Israel lobby in the U.S. is very powerful and Republicans do not want to be on the wrong side of (it) … saying this is a bad deal," he said. "If there is this opposition to it, it would be dangerous politically to come out in favor of it."

—By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.