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What Iran’s Election Result Means For Oil Markets

Ever since the Joint Comprehensive Plan of Action (JCPOA) was agreed in principle in 2015 by Iran and the P5+1 group of nations (U.S., U.K., France, Russia, and China plus Germany), the Islamic Republic has teetered between fully committing to being a moderate, Western-friendly regime or a hardline, anti-West but pro-Russia and China state. The strong showing in last week’s four-yearly parliamentary elections of the hardline (‘Principlist’) faction, comprising religious conservatives supported by the Islamic Revolutionary Guards Corp (IRGC), portends a decisive shift towards the latter hardline state model, reinforced by the existing political structure of the country.

It is true that the specific powers of Iran’s 290-member parliament (Majlis) are not as extensive as those of the parliaments of many other countries but it is also true that with at least 220 members being hardline conservatives the result of the latest four-yearly election that took place last week will have enormous repercussions for Iran’s foreign and domestic policies for years to come. Such a hardline philosophical view will serve only to reinforce the same hardline conservative inclination that is already entrenched in the fact that all of the legislation passed by Iran’s parliament then needs to be approved by the Guardian Council of the Constitution. This is a 12-member body that acts in the manner of a general constitutional overseer, with half of its membership always being Shia theologians directly chosen by the Supreme Leader – currently, Ali Khamenei – himself. The other six members are lawyers selected by the head of the judiciary, who is, in turn, also directly appointed by the Supreme Leader. In practical terms, then, Iran’s parliament has tended to deal with domestic issues only – albeit not those related to state security – with the bigger picture issues, such as foreign policy (including major policy programmes relating to the oil and gas sector) being decided in practice between the senior commanders of the IRGC and the President and his closest allies, with the resulting recommendation being made to the Supreme Leader, who then formally makes the decision. Related: Can’t Afford An EV? You’re Paying For It Anyway

In broad terms, from when current President Hassan Rouhani assumed his first presidential term in August 2013 to the middle of 2017, the moderate, pro-West faction held sway, both with the public and with Supreme Leader Khamenei, according to a source who works closely with Iran’s government. “Rouhani came to power on a big popular mandate of increasing civil rights, improving the economy, and re-engaging more fully with the West, and the IRGC had little choice but to take a back seat,” he told OilPrice.com last week. “He [Rouhani] was able to maintain this momentum as the JCPOA was first agreed in principle in 2015, then implemented a year later, and then for the next year or so news came virtually every week of a new foreign company signing an MoU [Memorandum of Understanding] for this or that oil or gas field or other business, so he was even more popular at that point, which is how he won the second term, and the Supreme Leader was backing him,” he added.

Indeed, in May 2017 when he won a landslide victory against a range of strong conservative opponents – including the relatively popular and IRGC-favoured Ebrahim Raisi – Rouhani was probably at the peak of his powers but it was only shortly afterwards, bolstered by this win, that he made a terrible mistake. “It was then that he decided, along with senior members of his closest supporters, that in order to finalise a lot of the deals that had been agreed in principle with foreign firms – in the oil and gas sector but in other sectors as well – he needed to start to cut back the powers and the scope of interests of the IRGC,” said the Iran source. “This was in line with what countries like that U.S. and the U.K. were pushing for in order for more involvement from their companies, although other Western powers – like France, Germany, Italy, Spain and so on – had already started to deal again with Iran,” he added. “However, Rouhani began to push for the IRGC to start to scale back its interests in the huge range of businesses,” he underlined.

Even prior to the implementation of the JCPOA in January 2016, evidence was given to a sub-committee of the U.S.’s House Committee on Foreign Affairs that the IRGC had significant ownership shares in 27 companies that were publicly traded on the Tehran Stock Exchange at that time and that the IRGC had placed top commanders at the heart of more than 200 Iranian companies. According to the testimony, the IRGC at that point was active in the Iranian oil, gas, petrochemical, automotive, transportation, telecommunications, construction, and metals and mining sectors. Additionally, the U.S. Department of Treasury, Office of Foreign Assets Control, in September 2012, described the National Iranian Oil Company (NIOC) itself as an “agent or affiliate” of the IRGC and therefore subject to sanctions under the ‘Iran Threat Reduction Act’. Related: Oil Trading Giant Sees Oil Price Recovery Later This Year

This existential challenge to the IRGC was compounded in the middle of 2017 when Rouhani and his closest advisers let it be known to the senior commanders of the IRGC that he eventually wanted them to disband as a standalone group and become just a part of the regular army, with no privileges and no business interests at all, according to the Iran source. Shortly after this, the IRGC resumed ballistic missile testing – specifically cited by the U.S. as being something that it would not tolerate - showcasing new weapons (including a new guidance system upgrade compatible with the Fateh-110 and Zelzal series of missiles and rockets), and at the same time going after Rouhani’s key man in Iran’s key sector of oil and gas, Bijan Zanganeh. Given that it was these IRGC-related activities and the resulting re-imposing economy-crushing sanctions on Iran that led to the U.S. unilaterally withdrawing from the JCPOA in May 2018 in the first place, it was ironic to say the least that in December Zanganeh faced impeachment from the Iranian parliament’s energy committee over the government’s decision to raise gasoline prices by at least 50 per cent, which prompted widespread protests. “This manoeuvre was designed to show that the IRGC was not going to go anywhere quietly and that it was absolutely set upon re-imposing its own influence on Iran,” the Iran source told OilPrice.com last week. It was the IRGC as well that was strongly implicated in the 14 September attacks against Saudi oil facilities that came at a time when hopes were high that the U.S. and Iran were set to sit down at the negotiating table, following a high-level prisoner exchange in Switzerland.

As it now stands, then, the strong showing of the hardliners in last week’s parliamentary elections lays down a marker by the IRGC that although some rapprochement with the West might be tolerated – provided that it is deal-specific and not part of a broader effort to moderate Iran – in reality it is more likely that Iran will continue to drift into the geopolitical orbit of Russia and China. This has been evidenced since the decline in Rouhani’s effective power from the middle of 2017, with deals being cancelled by Western companies, and then taken up by Russian or Chinese ones, as has been exclusively and deeply analysed by OilPrcie.com.

There is an argument that the relatively low turnout (just over 42.5 per cent, the first time it has dipped below 50 per cent since the 1979 revolution) amongst Iran’s 58 million voters (from a total population of 84 million people) might be indicative of some sort of protest against the tightening grip of the IRGC but this is a non-sequitur. “The electorate is tired of the IRGC, yes, but tired as well of the lack of real economic results that came to them as a result of Rouhani’s more moderate policies and re-engagement with the West,” said the Iran source. Moreover, with Rouhani not allowed under the constitution to run in next year’s presidential elections, the moderates will not have a recognisable figurehead for their cause. “And the U.S.’s attempt to cause some sort of change in Iranian politics towards the moderate philosophy by continuing to squeeze the economy only encourages patriotism as although Iranians don’t necessarily like the IRGC or the moderates, they do love their country, and they don’t like being pushed around, and they are used to making do without things,” the Iran source concluded.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on February 24 2020 said:
    It means one major strategic thing, namely, that hardliners spearheaded by the Islamic Revolutionary Guards Corp (IRGC) will continue to dominate Iran’s future well into the future even if US sanctions are lifted.

    The hardliners’ win was guaranteed by President Trump’s ignorant policy of walking away from the Nuclear deal prompted by Israel and the re-imposition of sanctions on Iran and also by the equally ignorant decision to assassinate Iranian military leader Qassem Soleimani in Bagdad leading to Iran’s retaliation against two American airbases in Iraq.

    This means that a rapprochement with the United States is out of the question. Iran considers the United States as the great Satan. It also means that its revenge for the assassination of Soleimani will not be over until American forces based in Iraq are evicted handing Iran a great strategic victory. This will eventually be followed by the withdrawal of all American forces from the Middle East.

    Iran’s drift into the geopolitical orbit of Russia and China is motivated by the fact that both countries bring business and investments to Iran without interference and plans for regime change. In contrast, the United States brings wars, sanctions, interference and threat of regime change. Iran and the whole Middle East are deeply disenchanted with the United States for demonstrating the ugly face of capitalism and a more sinister form of imperialism, one that strangles you if you don’t do what you are told. Just look at Iran, Syria, Libya, Lebanon and Venezuela.

    Iran’s control of the Strait of Hormuz and its huge oil and gas reserves will always be a major factor in the global oil market and oil prices; more so that the hardliners are going to be in control of Iran’s destiny well into the future whether the United State and Israel like it or not.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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