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Gary Norman

Gary Norman

Gary is Oilprice.com's South-East Asia & Pacific correspondent. He writes about energy matters, geopolitics and international financial markets. 

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Who Really Loses If The U.S. Walks Away From Saudi Nuclear Deal?

Riyadh

The U.S. is currently in talks with Saudi Arabia concerning a nuclear energy programme, which Riyadh says is a means of diversifying its economy and freeing itself from a reliance on crude. An agreement for such nuclear cooperation with the U.S. is known as a 123 agreement, and as part of any such agreement that nation must abide by certain conditions as per the U.S.’ nuclear non-proliferation policy. Simply stated, this agreement stipulates that nuclear partners must agree to use nuclear technology and material for peaceful purposes only. Any agreement for nations to enrich or reprocess nuclear material must be made separately, and herein lies the heart of the issues that threaten to undermine the process.

Saudi Arabia currently does not have such an agreement to enrich uranium, which is something that Saudi Energy Minister Khalid al-Falih sees as necessary. He stated that as the kingdom had large uranium resources, it would not be "natural" to import enriched uranium for use in reactors. It may then seem illogical for the U.S. to mandate that all nuclear material be imported, but the reasons behind this clause are clear when you consider the philosophy of non-proliferation, especially in the Middle East. The problem is that Iran currently has a deal with the U.S. and 5 other nations. Known as the Joint Cooperative Plan of Action (JCPOA), which limits Iran’s ability to enrich, but does not prohibit it completely. It also has an expiration date on those limitations.

The fear from Riyadh is that that the restrictions of that deal will not hinder Tehran’s ability to enrich weapons grade uranium. In an interview with CBS Saudi Crown Prince Mohammed bin Salman warned of a nuclear arms race in the Middle East, saying that “if Iran developed a nuclear bomb, we will follow suit as soon as possible.” This was in answer to the question of whether Saudi Arabia needed nuclear weapons to counter Iran, although he added that Riyadh had no desire to acquire them.

This puts the Trump administration in a tricky position. If it wants to stand firm against Saudi Arabia enriching uranium, then the only real option is to walk away from the deal entirely, or rewrite Obama’s deal with Iran, and force Tehran’s complete and permanent cessation of its own enrichment. The latter seems very unlikely. Whilst Europe wouldn’t want to upset U.S.-Euro relations, it is also reluctant to walk away from a deal that it sees as an immense achievement, especially one it believes Iran is abiding by. Related: U.S., Europe And Africa Boost Oil Exports To Asia

More critical is China’s investment in Iran. China has grand plans for Iran as part of its One Belt One Road (OBOR) project, plans which are already underway. China is interested in Iran for its location as a gateway to Europe, but it is also in need of its oil. In 2016 it promised Tehran $600 billion in investment, and late last year it extended $10 billion in credit. Opponents of the nuclear deal in Washington are convinced they can cripple Iran’s economy to force its hand, but according to Dr Kamiar Mohaddes, a senior lecturer in economics at the University of Cambridge, unilateral sanctions from the U.S. alone will not provide sufficient leverage. If Washington is indeed unable to force Tehran’s hand, then what will it lose by walking away from the Saudi deal?

Saudi Arabia is in talks with private firms from Russia, China, and South Korea to build two reactors, and it has plans to build 16 in total over 22 years, an investment of around $90 billion. Walking away from the deal would be walking away from any chance of having a piece of that pie, and as Saudi energy minister Khalid al-Falih said, "If the US is not with us, they will lose the opportunity to influence the program in a positive way." The Trump administration may be keen to bend these agreements to its will, but if it overplays its hand it stands to lose the most. Indeed its filibustering may already have led to its undoing, not only in terms of investment, but in terms of geopolitical influence on the whole.

By Gary Norman for Oilprice.com

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  • Mamdouh G Salameh on March 26 2018 said:
    The United States will be the loser economically and geopolitically if it walks away from a Saudi nuclear deal.

    If the United States insists that Saudi Arabia signs the so-called 123 agreement, which binds the signee to utilizing the technology for civil purposes only, then Saudi Arabia will look for other countries from which to get assistance and nuclear technology such as Russia, China, South Korea, France and others. South Korea is already helping build nuclear reactors in the UAE. And with large uranium reserves, Saudi Arabia would insist on enriching uranium locally for fuel to its proposed reactors.

    In contrast, Iran under the nuclear deal signed in 2015 with the 5+1 powers (US, Russia, China, France, UK and Germany) is permitted to continue enriching uranium to 5% grade for peaceful use.

    The Trump administration is going to walk away on the 12th of May from the Iran nuclear deal and re-impose sanctions on Iran. However, Iran will not lose a single barrel of oil exports from the re-introduction of US sanctions. The reason the pre-nuclear deal sanctions against Iranian oil exports worked was because of two things: one the imposition of sanctions by the European Union (EU) on insurance companies ensuring Iran’s oil cargoes, and the other the United States sanctions on banks dealing with Iran.

    The EU is not going to re-impose sanctions on Iran since Iran has not violated any of the clauses of the nuclear deal. As for US sanctions on banks dealing with Iran, even before the nuclear deal Iran was using the Chinese yuan and the euro for payment for its oil exports. Now they will use the petro-yuan to neutralize US sanctions on banking.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • JimHopf on March 27 2018 said:
    The funny/tragic part about this is that the US nuclear industry wouldn't stand a chance of winning any objective competition to build new nuclear power plants (nor would the French). Both the US and France haven't built reactors in awhile, and the few new nuclear projects in the US and France have gone badly (large delays and cost overruns).

    Meanwhile, the Russians, Chinese and Koreans have been building many nuclear plants and thus have the necessary experience and expertise. They have demonstrated the ability to build reactors on time and on budget, at a cost much lower than US or French reactors.

    So, if the Saudis did choose to take their chances with US reactors and nuclear companies, it would clearly be as a geopolitical gift to Washington, strictly to maintain good relations with their (US) patron. A large gift at that. Makes one wonder why this is being discussed so much in the first place, as they are overwhelmingly likely to go with the Russians or Chinese anyway. If they chose the Koreans, the US may be able to wield some influence on the process.

    People need to accept that, through decades of neglect and lack of political support, the US (and the West in general) has ceded its leadership in the nuclear industry. Instead, we've decided to invest ourselves in natural gas and renewables. To this day, market/energy policies enormously favor renewables and gas over nuclear. This has been going on for awhile. And now we (humorously) hear all this discussion about how we need to revive our nuclear industry, and maintain our leadership in the field, long after the horse has left the barn. We needed to talk about maintaining our leadership in nuclear (and taken necessary steps) back in the '90s.
  • Shawn Noyes on May 30 2018 said:
    Instead of doing Yucca Mountain, sell the Saudis on using CANDU reactor and the DUPIC fuel cycle. We could partner with the Canadians and leverage our spent nuclear fuel. We could use the The Savannah River Site (SRS). That is a nuclear reservation in the United States in the state of South Carolina. The fuel cycle was conceived as an alternative to the conventional fuel cycle backed options, with a view to multiple benefits expectable from burning spent PWR fuel again in CANDU reactors. It is based on the basic idea that the bulk of spent PWR fuel can be directly re-fabricated into a reusable fuel for CANDU of which high efficiency in neutron utilization would exhaustively bum the fissile remnants in the spent PWR fuel to a level below that of natural uranium. Such "bum again" strategy of the DUPIC fuel cycle implies that the spent PWR fuel will become CANDU fuel of higher burnup with relevant benefits such as spent PWR fuel disposition, saving of natural uranium fuel, etc. A salient feature of the DUPIC fuel cycle is neither the fissile content nor the bulk radioactivity is separated from the DUPIC mass flow which must be contained and shielded all along the cycle. This feature can be considered as a factor of proliferation resistance by deterrence against access to sensitive materials. It means also the requirement for remote systems technologies for DUPIC fuel operation.

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