Iran’s Latest Move Brings A New Nuclear Deal With The U.S. Closer

• The release of five American citizens from prison in Iran has raised the chances of a successful new version of a nuclear deal.
• A new deal will involve the unfreezing of monies due to Iran for oil sold to several countries before the U.S. reimposed sanctions.
• The previous version of the nuclear deal that was implemented on 16 January 2016 aimed directly or indirectly at destroying the power of the Islamic Revolutionary Guard Corps.

The deal announced on 11 September that saw five Americans released from prison in Iran has brought the quiet ongoing discussions over a new, watered-down version of the Joint Comprehensive Plan of Action (JCPOA) – colloquially known as the ‘nuclear deal’ – “much closer to fruition”, a senior figure in the European Union’s (E.U.) energy security complex exclusively told OilPrice.com last week. “Part of the new [JCPOA] will involve the unfreezing of monies due to Iran for oil sold to several countries before the U.S. reimposed sanctions on payments being made to Iran, after its withdrawal from the original JCPOA in May 2018,” he said. “This unfreezing of [US$6 billion in] money due to Iran from oil sold to South Korea would be done anyway under the new JCPOA, so it being done ahead of the deal being officially agreed and announced is a show of good faith on the U.S.’s part and releasing the U.S. prisoners is the same on Iran’s part,” he underlined.

As it stands, and as exclusively broken in OilPrice.com back in early July, the core of a new JCPOA has been agreed. It will not include any of the U.S.’s tough clauses in the previous version that was implemented on 16 January 2016 aimed directly or indirectly at destroying the power of the Islamic Revolutionary Guard Corps (IRGC) in Iran. The core elements of the IRGC had been instrumental in the Iranian Revolution that culminated on 11 February 1979 with the Iranian monarchy officially being brought down and then replaced by Ayatollah Ruhollah Khomeini. From that point, these elements of the IRGC have been regarded as the guardians of that Islamic Revolution and responsible for spreading Iran’s own brand of Islam across the world. 

Crucially from the IRGC’s and Iran’s perspective, the new version of the JCPOA will not include a cast-iron agreement on Tehran’s part to sign up to the Financial Action Task Force (FATF). This had long been the key sticking point for Iran, as the FATF would have destroyed the IRGC’s ability to fund itself and to fund its international proxies abroad. It has been able to fund itself for decades through a vast network of revenue-generating stakes in hundreds of companies across Iran and internationally, as analysed in my new book on the new global oil market order. 

By the time that the JCPOA was agreed on 14 July 2015, the U.S. view was that the IRGC has placed senior operatives at the heart of more than 200 Iranian companies, including the National Iranian Oil Company (NIOC), the National Iranian Gas Company, and the National Iranian Tanker Company. These revenues were then moved seamlessly through a network of domestic and international financial institutions – for a long time including high-profile banks in Europe and Asia – to enable the field operations of both the IRGC and its international proxies. The U.S. had hoped that by engaging with Iran through the JCPOA from 2015 the IRGC’s influence could be diminished. However, then-Iranian President Hassan Rouhani was unable to effect such a change for several reasons, also analysed in full in my new book. 

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Several of the activities that lie at the heart of the purpose of the IRGC would be made much more difficult, if not impossible if Iran signed up to the FATF. A precursor to the U.S.’s intended dismantling of the IRGC’s power within Iran was its designation by Washington in April 2019 as a ‘Foreign Terrorist Organisation’ (FTO). And one of the key intentions behind the FATF is to preclude funding for terrorism, and Iran knows it. There are 40 active criteria and mechanisms in place in the FATF 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 also has swingeing powers to wield against individuals, companies, or countries who transgress any of its standards. So intent was the U.S. previously on eradicating the influence of the IRGC in Iran that it made it clear that even if Iran did sign up to the FATF, Washington would not remove the designation of the IRGC as an FTO immediately. Rather, it would keep the damaging designation in place for at least two years, whereupon it would be reviewed. In the draft of the new version of the JCPOA, though: “Iran will merely have to indicate that it will make efforts towards aligning itself towards the FATF’s goals at some point in the future,” the E.U. energy security source told OilPrice.com. 

For its part, the U.S. will not drop its designation of the Islamic Revolutionary Guards Corps as a Foreign Terrorist Organisation. However, as indicated in the US$6 billion unfreezing of money due to Iran from South Korea last week, it will allow the sanctions against Iranian oil and gas exports to be gradually rolled back. One major positive of this limited JCPOA from the U.S. perspective is that it addresses the key Israeli fear regarding Iran – that it manufactures a nuclear weapon of some sort sooner rather than later. As the U.S.’s key ally in the Middle East, Israel had repeatedly told Washington since late 2021 that Iran was no longer ‘years’ away from being able to create a nuclear weapon but rather just two weeks away, in fact. 

On more than one occasion, according to the E.U. source, Israel told the U.S. that it was going to ‘decisively’ deal with the threat from Iran itself. Given the pattern of previous wars between Israel and its Arab neighbours, and the support likely to be given to the big Middle Eastern oil producers by China and Russia in the new global oil market order, the U.S. knew the danger of escalation into a superpower nuclear conflict that this might mean. This has added further impetus to the drive to get a new nuclear deal into operation as soon as possible. Therefore, a key pledge for Iran in the new limited version of the JCPOA is that it will keep uranium enrichment at or below 60 percent and that it agrees to regular inspections once again from independent nuclear watchdogs. 

An economic reason was also behind the U.S.’s initial efforts to re-engage in negotiations towards a new version of the JCPOA, and this is that bringing Iranian oil and gas into the global energy market should help bring prices down. With repeated extensions of oil production cuts by Saudi Arabia and Russia, higher prices have again fuelled already-high inflation in the economies of the U.S. and its key allies in the West and the East, bringing with it the threat of deep economic and political problems, as also analysed in my new book on the new global oil market order. As highlighted by OilPrice.com several times since 2018, Iranian crude oil and condensate production could bounce back very quickly after Iran’s Petroleum Ministry orders the NIOC to ramp up production. 

According to a senior analyst at global energy markets intelligence company Kpler, spoken to exclusively by OilPrice.com at the time the U.S. had re-opened negotiations, Iran could see an 80 percent recovery of full production within six months and a 100 percent recovery within 12 months. “Ultimately, we believe Iranian production could technically jump by 1.7 million bpd including 200,000 bpd of condensate and LPG/ethane, in a 6-to-9-month period from when sanctions are lifted and an immediate impact of a 5-10 percent fall in the oil price would be likely,” the analyst concluded.

It is apposite to note at this point that last week’s deal between the U.S. and Iran is not the first time that a similar deal has been used as a precursor to a new nuclear deal being done. As examined in full in my new book on the new global oil market order, the first week of December 2019 witnessed a high-level exchange of prisoners between the U.S. and Iran take place in Switzerland. During the exchange, the U.S. - for the first time since withdrawing from the original JCPOA in May 2018 - made it clear that it would resume negotiations with Iran on the removal of sanctions “with no preconditions.” Iran made it equally clear that it saw the prisoner exchange as the road to re-engaging in the JCPOA, without the removal of sanctions by the U.S. being required beforehand. The negotiations towards that deal fell through for reasons analysed in the book, and what that meant was that for any new deal – such as the one being discussed now – to get over the finish line, shows of good faith would have to be made from each side: exactly as has just happened.

By Simon Watkins for Oilprice.com

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