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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Nuclear Deal Increasingly Unlikely As Iran Strengthens Ties With Russia

  • The prospect of an imminent new “nuclear deal” between the West and Iran is looking increasingly unlikely. 
  • A senior political and oil industry analyst highlights that there is very little chance that Iran will be willing to make the one concession the U.S. needs to move the deal forward.
  • The cementing view of the United States came on 9 August with the launch of Iran’s ‘Khayyam’ satellite, built almost entirely by Russia and powered into orbit from the Russia-controlled Baikonur cosmodrome.

There are several reasons to be short crude oil currently – economic recession in the U.S. and looming recessions in Europe, ongoing lockdowns in China, the vested interest of the U.S. in keeping oil below US$75 per barrel of Brent, to name but three - but the prospect of an imminent new ‘nuclear deal’ between the West and Iran is not one of them. It is true that the European Union (EU) last week tabled a ‘final text’ of a new iteration of the nuclear deal – the Joint Comprehensive Plan of Action (JCPOA) – to Washington and Tehran. However, it is equally true, as conveyed at length and exclusively to OilPrice.com last week by several senior political and oil industry sources close to proceedings, that there is virtually no chance of such a deal being done without a massive concession coming from Iran that it is impossible to see the current regime making. “Nothing has changed in the past few months from when the U.S. decided that Iran was just trying to buy time for its nuclear weapons development program by continuing to submit new clauses to the text of the new version of the JCPOA agreement,” a senior energy source who worked closely with Iran’s Petroleum Ministry, told OilPrice.com. “And Washington has told everyone else in the P5+1 group [the U.S., the U.K., France, China, and Russia ‘plus’ Germany] that it will not budge from its position on the IRGC, which is aimed – as Iran knows – at destroying the IRGC’s influence, and by extension Iran’s influence – in the world,” he said. “As far as the U.S. is concerned, everything is now focused on ensuring that Iran does not get the three months it needs to finish the guidance systems it requires, with the help of Russia, to deliver weapons-grade nuclear material in the missiles it already has,” he added.

A cementing of the U.S. view that “we are not going to change a single word or add a single comma in the current draft [of the new version of the JCPOA] on the table” – as a senior European Union energy source told OilPrice.com last week - came on 9 August with the launch of Iran’s ‘Khayyam’ satellite, built almost entirely by Russia and powered into orbit from the Russia-controlled Baikonur cosmodrome in Kazakhstan. According to Iran, the satellite will be “used to monitor Iran’s borders and improve the country’s capabilities in management and planning in the fields of agriculture, natural resources, environment, mining, and natural disasters.” According to the U.S., the satellite is to be used for spying on its neighbors. Neither statement is entirely true, although the U.S. did hint at how serious it is when a State Department spokesman said last week of the Khayyam launch: “Russia deepening an alliance with Iran is something that the whole world should look at and see as a profound threat.”

What the Khayyam satellite was launched for is to provide the final piece of the missile guidance systems that Russia and Iran have been working on for years – this one relating to improving the accuracy of missiles (by up to 25 percent for short- and medium-range missiles and by up to 70 percent for long-range missiles) according to the Iranian source. During those past few years, Iran has sent several very small (50 kilograms or less) satellites of its own making into orbit, although none of them had the relative operational sophistication of the Russian-made Khayyam satellite (which weighs over half a tonne) launched last week. Prior to the launch of the Khayyam, there were five failed launches in a row for the ‘Simorgh’ program, which involved the same type of array as the Khayyam - a rocket launched that also carries a satellite (Khayyam was launched using a Russian Soyuz-2.1b rocket booster). Attempts by Iran to lunch more larger and more operationally sophisticated satellites – like Khayyam – have previously met with ‘unexplained’ setbacks, including most notably in recent times a massive fire at the Imam Khomeini Spaceport in February 2019 that also killed three key Iranian figures in its ‘satellite’ program. 

This latest advance by Iran in its quest to be able to deliver a fully functioning nuclear warhead to anywhere within a few-thousand-mile radius should come as no surprise, given that the same sponsor for North Korea’s nuclear program – China – is the key state sponsor of Iran, as analyzed in depth in my latest book on the global oil markets. After the landmark 25-year deal was struck in August 2019 between Iran and China – a story exclusively broken by me in September 2019, nearly two years before it was officially announced or reported on by anyone else – China (and Russia) gradually and quietly began to increase their cooperation on key elements of Iran’s nuclear weapons development program. In China’s case, the level of intermediation between middle-men connected to it and to North Korea and Iran was stepped up using a triangular system of technology supplies (from China to North Korea via middlemen, and then from North Korea to Iran), and payment principally in oil (from Iran to North Korea, with some also sent from Iran to China directly). Russia had agreed to take a back seat to China in Iran’s nuclear weapons program in the year or two after the 25-year China-Iran deal had actually been made (in August 2019), but shifted back to a front seat position from September 2021 (when it began to activate its plan to invade Ukraine), as China remains wary of overtly challenging the U.S. outside its own perceived area of influence in the Taiwan Strait.

Related: Iran’s Top Automaker Looks To Secure Russian Investments

Iran and Russia still need “two to three months to finalise its overall missile guidance system,” according to the sources spoken to by OilPrice.com last week, although it already has a vast array of missiles already in place with varying range applications. This leaves the nuclear material itself for the warheads as the third element it needs to line up before it rates as a clear and present nuclear threat. According to the 30 May 2022 report by the International Atomic Energy Agency (IAEA): “Due to the growth of Iran’s 60 percent enriched uranium stocks, Iran has crossed a dangerous new threshold: its breakout timeline is now at zero. It has enough 60 percent enriched uranium, or highly enriched uranium [HEU] in the form of uranium hexafluoride [UF6] to be assured it could fashion directly a nuclear explosive. If Iran wanted to further enrich its 60 percent HEU up to 90 percent HEU, typically called weapon-grade uranium [WGU], used in Iran’s known nuclear weapons designs, it could do so within weeks utilizing only a few advanced centrifuge cascades.”

Given this, it could be argued that bringing Iran back into the fold of global diplomatic relations by agreeing to a new iteration of the nuclear deal might be the way forward. However, for Washington, it appears that an inflection point has been reached in the Oval Office over the JCPOA in which, as OilPrice.com has been told: “We are not going to change a single word or add a single comma in the current draft [of the new version of the JCPOA] on the table.” The only thing that the U.S. will now accept from Iran is – in essence – the neutering of the Islamic Revolutionary Guards Corps (IRGC), which it is seeking to do via Iran signing up to the regulations of the Financial Action Task Force (FATF) and then to becoming a fully-regulated and constantly-monitored FATF member. 

With its 40 active criteria and mechanisms in place to prevent money laundering (an activity that is vital to the IRGC’s activities across the world) and nine criteria and mechanisms in place to do the same for the financing of terrorism and related activities (a core of the IRGC’s role in promoting Iran’s brand of Islam around the globe), the FATF has swingeing powers to wield against individuals, companies, or countries who transgress any of its standards and is extremely aggressive in using them by degrees, depending on whether the sanctioned entity is on its ‘grey’ or ‘black’ list. A sure sign of the U.S. has reached the end of the line regarding Iran is that – as of now – even if Iran does sign up to the FATF, Washington will not remove the designation of the IRGC as a ‘Foreign Terrorist Organisation’ (FTO) immediately, as it had promised a while ago, but will keep the damaging designation in place for at least two years, whereupon it will be reviewed, a senior source close to Iran’s Petroleum Ministry told OilPrice.com exclusively last week. “This review,” he concluded, “will also assess whether all Iranian military and intelligence elements of influence have been removed from several countries, including Iraq, Syria, Lebanon, Yemen, Afghanistan, and Pakistan, or Iran fails the review anyway.”

By Simon Watkins for Oilprice.com

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Leave a comment
  • DoRight Deikins on August 16 2022 said:
    «“This review,” he concluded, “will also assess whether all Iranian military and intelligence elements of influence have been removed from several countries, including Iraq, Syria, Lebanon, Yemen, Afghanistan, and Pakistan, or Iran fails the review anyway.“»

    Ouch!

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