Save the Oil: Why the Iran Deal Won’t Happen (Rev 6:6)


Why Does Russia Fear Iran’s Nuclear Deal?

Posted By: Polina TikhonovaPosted date: May 19, 2015 09:25:17 AM

The framework deal on Iran’s nuclear program is far from being realized and has numerous hiccups and enemies attached to it. However, most of media and political experts discuss it as a sealed deal. They even talk about its consequences. Most of them are talking about Saudi Arabia and Israel’s fate. And, of course, there are some analysts who have concerns over the relations between Iran and Russia.

Russia would like to keep Iran under sanctions

Most of the experts believe that the deal itself is unfavorable for Russia, and that Moscow would like to keep Iran under sanctions. Undoubtedly, Russia is interested in keeping the current status quo for as long as it’s possible, which had a lot of limitations imposed on Iran and Moscow was the only partner for Tehran.

However, it must be pointed out that such status quo was extremely volatile and the situation could spiral to either a direct war between the US and Iran or a war in Syria. And no matter how the war would have ended, it would destabilize the Middle East and the global economy as a whole. That’s why the framework deal is the least evil of all for Russia.

It must be understood, however, that the Iran framework deal doesn’t mean a Russia’s sudden rapprochement with Iran from one side, and with the West from the other. As for the US, it’s difficult to predict any sudden renewal of economic relations as they have been deteriorated ever since the Iranian revolution.

And the two countries can’t really establish relations anew as it must be first approved by the Congress, while the lifting of economic sanctions against Iran is not even in the cards now. The US President Barack Obama will consider himself lucky if he can at least convince the Republican Congress to not halt the nuclear deal.

The Europeans are going to attempt entering the Iranian market and drive out the Russian as well as Chinese companies. However, the Iran’s interest of having close cooperation with Europe should not be exaggerated.

The majority of Iranian establishment backs the talks efforts only because it wants the economic sanctions to be lifted. The Iranian conservators are not interested in building close political-economic relations with the West. They believe that the more Iran opens up to the Western world, the more chances for the country to have a ‘color revolution’, which would bring down the current regime in place.

Iran’s entering of external markets would lower the prices of crude oil

According to other political experts, another Russia’s fear is that lifting the sanctions against Iran would result in entering of external markets by the Iranian fossil fuels, which therefore would lower their prices.

And the experts are partially right – well, at least when it comes to crude oil – the Iranians have promised to dramatically increase the export of crude oil right after the sanctions are lifted.

As of now, Iran exports about 1 million barrels of oil a day and after the sanctions are lifted, it plans to double the number and even come back to the pre-sanction number of exporting 2.5 million barrels of oil a day.

According Mohsen Qamsari, the director for international affairs of the National Iranian Oil Company (NIOC), Iran can ship almost half of the supplies of oil that it provided to the European market before.

“The contracts will be clinched on the basis of spot deals until the European clients finish their existing annual import contracts and are ready for new contracts,” Qamsari said.

However, the only possible hiccup for the crude oil export might be a gradual, not the ‘full and at once’, lifting of the sanctions as well as Iran’s unwillingness to sell oil at such a low price.

Iran might try destabilizing the situation in the Middle East

As a matter of fact, as Saudi Arabia privatized the Iranian quota, Iran might try to take it back either through the process of talks or through destabilizing the situation in Yemen as well as Saudi Arabia.

As for the export of the Iranian oil to EU through the Nabucco-West pipeline, which is an ‘enemy’ to Gazprom, experts claim that it would become possible only in a decade or so.

Iran must build a pipeline network from its South deposits to the Turkish border, normalize its relations with Turkey, improve energy efficiency of its production sector in order to not consumer so much gas. However, a lot might change within the next 10 years, especially given the fact that this is the Middle East we are talking about.

And finally, another Russia’s fear is that after Iran is liberated from the sanctions, Russia is going to lose a significant share of its influence in the Middle East. Until recently, it really seemed so: Iran was the main partner of Russia in the region, and the inevitable worsening of the relations between Moscow and Tehran after Russia stopped being a single-source partner, would decrease Russia’s presence in the Middle East.

The number of nuclear clients of Russia is also decreasing by the second. Ukraine, which has been the top client of the Russia’s nuclear sector, is posed to develop a cooperation with the US companies in order to upgrade its own nuclear infrastructure.

However, during the last couple of years, Russian authorities have managed to find alternative partners largely thanks to its unhinged position on Syria’s matters. Russia has been reached out by countries – such as Egypt – that are looking to diversify their relations with the US. Furthermore, Russia has managed to improve its diplomatic relations with Saudi Arabia and the Persian Gulf countries.

So now, Iran is particularly not interested in ending relations with Russia and letting it freely operate in the region.

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A Nuclear Deal With Iran Will Cause Chaos With Oil (Rev 6:6)

A Nuclear Deal with Iran: The Impact on Oil and Natural Gas Trends

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January 27, 2015

In last week’s State of the Union Address, President Obama threatened to veto new legislation affecting five issues, four of them in the domestic policy arena and just one covering foreign policy. The foreign policy issue in question involved the prospect of new sanctions legislation targeting Iran. Correspondingly, the administration has recently ramped up efforts to conclude a nuclear deal with Iran.

Should the United States and its partners in the P5+1 — Britain, China, France, Russia, and Germany — strike a deal with Iran, the global oil and gas markets would no doubt be affected. Indeed, several leading oil and gas companies are already preparing for a return to business in Iran in the event sanctions are lifted. Such jockeying would only intensify once the Iranian oil and gas sector became fully available to international markets.

Oil

In mid-2012, sanctions were imposed against Iran’s oil exports, precipitating a drop from 2.5 million exported barrels a day to close to 1.4 million a day. If sanctions were lifted now, Iran might need a full year to bring its production to pre-sanctions levels. Moreover, given current market conditions, only limited international investment will likely be available to help restart its production. For one thing, Iran has not offered particularly attractive terms to investors, and at today’s oil prices, investors are cutting back everywhere. Such realities cast major doubt on Iranian oil minister Bijan Zanganeh’s recent claim that if sanctions were to end, “Iran will double its oil exports within two months.”

However, the announcement alone of an agreement with Iran that removes international sanctions would accelerate the current steady downward trend of the global oil price. Thus, the oil price would be affected even before increased physical supplies of Iranian oil reached the market. And more oil would gradually return to the market, helping keep global oil prices low and perhaps depressing them even further. Burdened by sanctions, Tehran has offered discounts to regular buyers such as China, India, Japan, South Korea, and Turkey. The end of sanctions would most likely mean that such consumers would pay a price more in line with global prices. Accordingly, this could create an opportunity for Saudi Arabia and other Gulf producers to increase their market share.

Natural Gas

Since the Russia-Ukraine crisis erupted last year, Tehran has tried to position itself as a reliable alternative to Russia as a gas supplier to Europe. Indeed, Iran is the only state close to Europe’s borders that possesses enough natural gas to rival Russia’s dominance in most European gas markets. Iranian president Hassan Rouhani even stated recently that “Iran can be a secure energy center for Europe.” And Iran’s deputy oil minister, Ali Majedi, boasted in official Iranian media that “Iranian natural gas is Russia’s only competitor for Europe.” He continued that European countries could import Iran’s gas through three separate routes: Turkey, Iraq, or a pipeline running through Armenia and Georgia, and then under the Black Sea.

The notion of Iran as a future alternative gas supplier for Europe is acknowledged by European officials as part of their recent drive to lessen dependence on Russian imports. In April, the EU’s foreign policy arm — the Directorate-General for External Policies — published a study of the EU’s natural gas import options in light of the Ukraine crisis and concluded that “Iran is a credible alternative to Russia.”

However credible an option Iran might be for supplying Europe, two main obstacles would slow Iran’s entry into Europe’s gas markets: one, the need to produce more gas and, two, the need to build infrastructure to get it to Europe. To be sure, Iran is a significant natural gas producer, generating 160 billion cubic meters a year, third globally behind just Russia and the United States. Its output constitutes about 35 percent of annual EU gas consumption. Iran also has vast reserves. Yet interestingly, Iran is a net gas importer, with the country consuming a larger proportion of natural gas than any other country in the world. Iran’s high natural gas consumption rate is due in part to its very low domestic gas prices and thus low energy efficiency. Iran imports gas from Turkmenistan and Azerbaijan, while it exports a bit less to Turkey and Armenia.

In Turkey, energy industry sources have reported that Ankara is preparing its pipeline infrastructure to enable transit of Iranian gas to Europe once sanctions are removed. However, natural gas production requires much larger investments than oil production, and concluding a supply contract generally takes a number of years. In addition, either long-distance pipelines or liquefied natural gas (LNG) facilities cost billions of dollars, with these costs recovered only over many years. Such investments are therefore not undertaken lightly. Accordingly, after sanctions are removed, it will probably take at least five years, and possibly much longer, until meaningful volumes of Iranian gas hit European markets. Europe will also compete with Asia for Iran’s gas exports, since LNG exports into lucrative Asian markets may be more attractive to Tehran than European markets. If Iran seeks to sell LNG to Asia, U.S. LNG exports to the region could find themselves challenged by a new competitor. However, this would take close to a decade to play out.

Geopolitical Impact

A lifting of sanctions on the Iranian oil and gas industry would have a number of geopolitical ramifications. Regarding the export of oil in particular, the strongest effect would undoubtedly be heightened tensions with Saudi Arabia, including on OPEC policy. Recently, Iranian president Rouhani explicitly criticized Saudi Arabia for what he views as Riyadh’s intentional policy to keep oil prices low and threatened that “[the Saudis] will suffer.”

On gas, Russia would take steps to block Tehran’s entry into European markets, as it has done in the past. In 2007, when Tehran inaugurated gas supplies to neighboring Armenia, Russia’s Gazprom immediately bought up the pipeline project within Armenia and built it with a small circumference to preempt its future use for transiting gas to European markets.

Moscow and Tehran could also find themselves competing for gas market share in neighboring Turkey. Already Russia’s second largest gas export market, Turkey’s role in Russia’s gas export strategy has recently grown with Russia’s proposed route change of the South Stream export pipeline from Bulgaria to Turkey.

Overall, cooperation between Russia and Iran rests on a rocky basis, and once Iran is released from sanctions and its conflict with the West, many issues of strategic competition between Tehran and Moscow will resurface, including in the sphere of gas markets.

Another potential conflict that may emerge once sanctions are removed and Iran’s natural gas industry revives is with Qatar over the delimitation of their shared South Pars/North Dome field. This natural gas field is one of the world’s largest and the main source of Qatar’s massive LNG exports as well as the main area where Iran has been investing in new gas and oil capacity. Conflict between Doha and Tehran over delimitation has been forestalled somewhat by sanctions and the corresponding lack of investment in Iranian production in the contested field.

Conclusion

If the United States and its partners can reach a deal with Iran, all players must understand the potential consequences of Iran’s reentry into the global oil and regional gas market. Most immediately, tensions could surge with other energy producers, such as Russia, Saudi Arabia, and Qatar. The downward spiral of global oil prices would also be reinforced. Tehran, it must be noted, could face serious difficulties finding markets for expanded output and attracting the needed investment in production and gas transit facilities. But in the long term, expanded Iranian output could create more supply options for European and Asian gas markets.

Brenda Shaffer, a specialist on international energy issues, is currently a visiting researcher at Georgetown University’s Center for Eurasian, Russian and East European Studies (CERES), on sabbatical from the University of Haifa, where she is a professor in the School of Political Science. She authored the Washington Institute study Partners in Need: The Strategic Relationship of Russia and Iran.