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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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No One Can Afford Another Round of Iran Sanctions

As Iran and the P5+1 prepare to meet in Baghdad on 23 May for the next round of nuclear talks, Europe should be seriously considering the implications of its planned sanctions on Iranian oil scheduled to be implemented on 1 July. Obama certainly is considering this.

Greece is collapsing and the entire Euro zone is in trouble. A newly elected French President Francois Hollande is a very important confidante for US President Barack Obama, and together they have plans to save Europe – particularly Greece and the Eurozone – with or without Germany’s cooperation.

These ambitious plans, which must see some results before US elections in November, will be thwarted if Europe goes through with its 1 July sanctions on Iranian oil. Though Washington cannot at this point start publicly expressing the desire that Europe back down on the sanctions plans, the Obama administration knows the result of those European sanctions with be higher oil prices and could spell his doom, along with the Eurozone’s.

Saber-rattling aside, everyone (except Israel) wants to cut a deal in Baghdad. The heavy-handed sanctions that are already in place are having an effect, and there is no need to add a new round of European sanctions in July. Hopefully, Baghdad will make this clear.

Iran is hurting under sanctions. Sources on the ground in Iran tell Oilprice.com that while the situation is not as dire as it is being portrayed in the Western media, things are bad and getting worse. Inflation is soaring, with food prices increasing anywhere from 25 to 125 percent on different items. Fuel prices are also soaring, while unemployment is at about 35 percent.

The Iranian government is subsidizing food and fuel and handing out cash subsidies to as much as 60 percent of the population. Meanwhile, lawmakers are battling in parliament over whether to cut subsidies that the budget cannot handle much longer. So far, those opposed to cutting subsidies have won out, clearly holding out hope that the Baghdad talks will lead to a relaxation of sanctions.

If Europe goes forward with its 1 July sanctions, the situation will worsen exponentially. But the window of opportunity is now, in Baghdad, while there is still room for diplomacy.

Among the deals the West could put on the table, despite Israel’s objections, are a stay for the 1 July European sanctions, and a reversal of European sanctions on insurance for tankers transporting Iranian petrochemicals, which is supposed to be extended to oil in July.  The Obama administration will not remove sanctions as a result of Baghdad, but it could promise an incremental relaxation in return for a commitment from Iran.

Ahead of Baghdad, the G-8 summit on 20 May adopted the Camp David Declaration, which indicates that this is the way things are progressing. The declaration text was conciliatory, calling on “Iran to seize the opportunity that began in Istanbul, and sustain this opening in Baghdad by engaging in detailed discussions about near-term, concrete steps that can, through a step-by-step approach based on reciprocity, lead towards a comprehensive negotiated solution which restores international confidence that Iran's nuclear program is exclusively peaceful.”

A number of statements by Iranian officials, too, herald some positive development – or at least signal that (almost) all sides are prepared to stave off an immediate crisis.  Particularly, Iran is preparing its public for negotiations that could be perceived as compromise, stressing that any of these compromises would be victorious for Iran.

The bottom line is that Obama cannot afford another round of sanctions on Iran, at least not in the run-up to elections. Europe, of course, cannot afford anything. If Israel can be kept from blowing its top, the Obama administration will do everything in its power to ensure that the “Iran situation” does not reach any dangerous climax over the next six months.

By. Charles Kennedy for Oilprice.com


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