The odds of a new nuclear deal with Iran are shrinking. The ongoing discussions, which have been lauded several times by participants to have almost reached a solution, are still hanging like a boxer on the ropes.
While the knockout blow hasn't yet been landed, Tehran’s hope to get the U.S. and its European partners to sign a deal with regard to the global oil supply deficit is increasingly unrealistic. The current discussions are hitting a brick wall as the Iranian position on several key issues is preventing a breakthrough. Since the latest negotiations started over a year ago, Tehran has been actively engaged in finding new ways to get its hands on nuclear weapons technology. The new hardline government of president Raisi, backed fully by the Islamic Revolutionary Guards (IRGC), the extremist military force ruling Iran, is not willing to back down at all. A new agreement according to Iran, cant be signed if sanctions are not removed on the IRGC. The latter is a no-go area at present for U.S. president Biden, as he does not have enough support to put this through Congress.
Removing the IRGC from the list of terrorist organizations is not just being opposed by a majority of US Democrats and Republicans in the House but also in the Senate. At the same time, Biden needs to get the backing of outside parties too, especially the Arab Gulf states, such as the UAE and Saudi Arabia, but also Egypt and Israel. Arabs and Israelis are even openly discussing a military anti-Iran alliance, which could be used as a geopolitical counterweight against any pro-Iranian US or European moves.
Related: Yergin: Europe Gears Up To Sanctions Russian Energy Supplies
During an unprecedented Arab – Israeli meeting in the Negev, Israel, UAE, Bahrain and Morocco, have been discussing possible strategies to counter Iranian influence in the region. The outcome is not clear, but Israeli and Arab military analysts have been hinting at a military alliance. Iranian officials have already conceded a possible defeat, as one stated this week that the ‘agreement is in the emergency room”. The JCPOA discussions at present in Vienna, but also in the backrooms of Western and Iranian governments, were an almost impossible venture from the start. As former U.S. President Trump’s move to leave the JCPOA agreement already clearly reflected, the current agreement is built on a weak basis, not including much stricter limits on Iran’s nuclear program, but also not taking into account the growing capabilities of Iran’s missile developments, and its continuing support for anti-Western or anti-Arab proxy forces, such as Hezbollah, Hamas, Houthis and the Shi’a militias in Iraq. All have been involved in military or terrorist actions against Western targets or Arab infrastructure. The continuing direct support of Iran for Russia’s military aggression in Ukraine is also not being accounted for.
Without addressing the future role of Iran in the Middle East, no real nuclear deal can be signed. For Iran, the opportunity to take advantage of the crisis in energy markets, due to US-EU sanctions on Russia, is lost. For the Raisi government, the main powers are Russia (Syria, Iraq, Libya) and China. The latter is the largest economic partner of the regime in Tehran, investing around $26.5 billion in 2020. At the same time, China is propping up the Iranian regime, representing almost all of Iran’s oil exports at present. A recent report stated that Tehran exports around 829,260 bpd of oil to China via a so-called ‘ghost armada’. Since the inauguration of U.S. president Biden, Iran has sold around $22 billion worth of crude to Beijing. Washington-based critics are blaming Biden’s rather weak sanctions implementation regime for the continuation of these clandestine oil exports. For Tehran, the current flexibility in Washington is a welcome present as Iran still receives around its hard-needed billions to prop up its own economy and strengthen its proxies. The U.S. State Department has admitted that China is importing illegal Iranian oil, but refuted claims that US sanctions are weak or not working at all.
Related: How Egypt Could Become A Critical Energy Hub
For Tehran, the only hope at present is that some European governments have weak knees and will go for a deal on their own. A total blockade of Russian oil and gas is a nightmare scenario for European economies. Some analysts are expecting that a lasting energy shortfall in European markets could be a catalyst for an Iran-EU deal. If the energy crisis on the European continent worsens, some European countries will be willing to break out of the current U.S.-EU cooperation fold.
In a move to benefit from the increased demand for non-Russian crude, Tehran has raised its crude oil selling prices (OSPs) for Asian buyers. The NIOC indicated that all three grades of Iranian oil namely Light, Heavy, and Forouzan, will see price hikes. May OSPs for Iranian Light to Asia stand at $9.2 per barrel above the Oman/Dubai average, while Iranian Heavy and Forouzan grades are set at $7.95 and $8.05 above the benchmark. It seems that Iranian oil analysts are taking into account the growing demand for Iranian crude even before possible oil sanctions are being put in place on Russia.
By Cyril Widdershoven for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Will We See Another Oil Price Breakout Soon?
- Chinese Refiners Cut Output At An Alarming Rate
- What’s Keeping China From Buying More Russian Crude?
The writing has been on the wall for the Americans from the day Iranian hardline President Raisi was elected with huge support from the IRGC.
Iran isn’t in a hurry to sign a new deal with the United States since it is successfully evading US sanctions and exporting an estimated 1.5 million barrels a day (mbd) of its crude or 71% of its pre-sanctions exports, two thirds of which are bought by China and the rest by India and scores of other countries.
And with a tight global oil market and Brent crude price above $100 a barrel, Iran could be earning an annualized $54.75 bn.
What the Biden administration doesn’t realize is that Iran is even willing to accept the inconvenience of continued US sanctions in return for forcing the ejection of US military presence from Iraq and eventually the whole Middle East.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London