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Does Iran's Energy Future Hinge on Nuclear Talks?

U.S. State Department spokeswoman Jen Psaki said this week tightening sanctions on Iran "would be a mistake." Iran since President Hassan Rouhani's inauguration this year has launched a charm offensive against its western adversaries in an effort to get relief from sanctions crippling its energy sector and economy in general. The rial, the Iranian currency, collapsed last year under sanctions pressure and Rouhani's administration is eager to erase the economic legacy of his predecessor, Mahmoud Ahmadinejad. Easing sanctions, however, could in theory give Iran more opportunities on the international energy market. Israel, for its part, says sanctions relief could equate to a $40 billion windfall for its adversaries.

Psaki said this week U.S. Secretary of State John Kerry felt tightening sanctions would be "a mistake" while Iran and its international negotiating partners are discussing Iran's controversial nuclear issue.

Related article: Nuclear Talks with Iran Intensify as Deal Emerges

"We are still determining if there’s a diplomatic path forward," she said. "What we are asking for right now is a pause, a temporary pause, in sanctions."

Israel, however, says that may have a net benefit for Iran. Israeli Strategic Affairs Minister Yuval Steinitz said the relief in question likely wouldn't extend to oil exports but would have a significant impact nonetheless. Psaki, for her part, said nobody was talking about rolling anything back, only ensuring U.S. legislators and nuclear negotiators were on the same page.

Iran, meanwhile, announced it expected Russia would help it build another nuclear power plant in the country as early as next year. Russia already helped Iran build its Bushehr nuclear facility near the Persian Gulf. Ali Akbar Salehi, director of the Atomic Energy Organization of Iran, said power plants with the capacity to churn out 4,000 megawatts of electricity are under consideration. Enriching uranium is one of the things Iran says it's protecting in order to feed those plants, though its adversaries say that could be a cover for the development of a nuclear weapons program.

Related article: No Deal Done, but Iran will Allow Inspectors to Visit New Nuclear Facilities

Iran sits on top of some of the largest oil and natural gas deposits in the world. OPEC, in its latest monthly market report, said, however, that Iranian oil production has declined from its average 2.7 million bpd reported in the first quarter of the year, before Rouhani took office. Meanwhile, Iran has held out its lucrative natural gas resources to Pakistan, which blames its dilapidated infrastructure for the inability to keep up with energy demand. Washington, however, maneuvered in front of Iran's effort by bringing Pakistani delegates to the United States to discuss the energy crisis. The State Department this week said it was ready to help Pakistan exploit its own natural gas reserves while at the same time offering a $95 million loan for a 50 MW wind power plant in southern Pakistan.

Kerry said this week negotiating partners were "very, very close" to reaching a deal with Iran. What Washington decides to do with sanctions will become clearer as the situation evolves. While at least part of the song remains the same, what's becoming clear is that Iran may get to breathe a little easier in the coming months. Its energy future, not just its nuclear ambitions, may hang in the balance.

By. Daniel J. Graeber of Oilprice.com




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