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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Expert Analysis: Is This The End Of The Iran Deal?

Iran oil

The deadline for President Trump to re-certify the Iran nuclear deal and issue a waiver for sanctions is less than two weeks away. All signs point to President Trump declining to grant that waiver, which could kick off a period of heightened tension between the U.S. and Iran. But what comes next? And what does confrontation mean for the oil market?

Oilprice.com decided to put some of these questions to Richard Nephew, who was the Principal Deputy Coordinator for Sanctions Policy at the Department of State for the Obama administration from 2013-2015. He served as the lead sanctions expert for the U.S. team negotiating with Iran on the nuclear deal. He is the author of The Art of Sanctions, and he is currently a Senior Research Scholar at Columbia University’s Center on Global Energy Policy.

Oilprice.com: It seems likely at this point that the Trump administration is going to back out of the Iran nuclear deal. What options does Trump have before him and what comes next?

Richard Nephew: Well, ultimately, he has every option in front of him. He’s constrained his own options with his ultimatum far more than anyone else has. If he backed down, he could return to the status quo and be greeted as a champion.

But, he probably won’t. So, it will be a function of what the State Department and others can provide by way of options, and how those options are interpreted by Bolton and others on their way to the President.

Beyond that, assuming he withdraws, his options will winnow down quickly to whether and how fast to push sanctions, including against U.S. partners and those against whom we are presently pushing a broader trade agenda. That is going to be a constraining function in regard to how much they will do but perhaps not on how much we will demand.

OP: How quickly could Iranian oil be impacted? There will presumably be a phase in period for any U.S. sanctions, so when is the earliest that we will see Iranian barrels off of the market?

RN: We could see barrels off the market within days if people have flexible enough contracts to start making reductions. But, we will likely see shifts in purchasing within the first 60 days or so such that the 180 day reduction requirement can be achieved without having to undertake dramatic cuts at the end of the period.

Of course, this is assuming there is no offsetting purchasing, which is possible but— in my view — should not be assumed. I think that some of the purchasers now (particularly China) will refuse U.S. efforts and may buy more Iranian oil, making our task that much more difficult.

OP: In your February report from Columbia University, you estimated that about 400,000-500,000 bpd of Iranian oil could be disrupted within 12 months. Since the publication of that report, John Bolton and Mike Pompeo have joined the administration. Does that number still look about right? Related: The Top Natural Gas Players In 2018

RN: Yes, because that’s a function of the 20 percent reduction demand. It may be more, it may be less, but the actual demand and dynamics of implementation will be affected more by market issues, decisions on whether to cooperate with the United States generally, and broader purchasing behavior than Bolton or Pompeo.

OP: It will be tough for the Trump administration to build a coalition in the same way that the Obama administration did for sanctions in the lead up to the 2015 nuclear deal. If Trump moves to re-impose sanctions, what will Europe, China and Russia Do?

RN: I anticipate that China and Russia will refuse to cooperate with U.S. sanctions and may even increase their trade with Iran.

Europe will split, with some companies cooperating with U.S. sanctions and others refusing. But, even those cooperating may continue to do as much business as they can. I find it hard to believe there will be the kind of U.S.-EU cooperation as existed in the past, particularly in the context of Trump’s trade war.

OP: Can Iran simply reroute its oil to other buyers, i.e., ship oil to customers in Asia instead of Europe? In other words, will oil supply be disrupted or simply moved around?

RN: Of course they can. And then it is a question of intelligence gathering, diplomacy and enforcement to manage the consequences of this.

OP: Detente might not be the right word, but the U.S. and Iran had settled into a kind of cold peace after the 2015 nuclear accord. The Trump administration is reviving the conflict despite evidence that suggests Iran is complying with the terms of the JCPOA. What might Iran do in response and how quickly could things spin out of control?

RN: I think that Iran will play victim for a short time to try to split the international coalition aligned against it. But, in the end, they will need to restart restricted nuclear activities for domestic reasons.

Things could spin out of control very quickly if this happens in the context of a broader conflict in Syria or if a Bolton-led Trump decision to retaliate takes on a military character.

By Nick Cunningham of Oilprice.com

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  • Freonpsandoz on April 30 2018 said:
    If Israel gins up another US-led regime-change war like it did in Iraq, expect half of America to fight on the side of Iran this time.
  • Expert on May 01 2018 said:
    "expert" seems too preoccupied with ramming Trump
    what about boosted U.S. oil production thanks to rising prices?
  • Mamdouh G Salameh on May 01 2018 said:
    Three things emerge from your article and your interview with Richard Nephew, who served as the lead sanctions expert for the US team negotiating with Iran on the nuclear deal and who is currently a Senior Research Scholar at Columbia University’s Centre on Global Energy Policy: one is that it is inevitable that the United States will walk away from the nuclear deal with Iran on the 12th of May given Israel's pressure on Washington, two, sanctions will follow and third that Iran could lose 400,000-500,000 barrels a day (b/d) of oil exports within 12 months.

    While I agree that President Trump is going to walk away from the nuclear deal and re-introduce sanctions on Iran, I disagree completely with Mr Nephew and the Colombia University report that Iran could lose some of its oil exports as a result of the sanctions.

    Whether President Trump stays in the Iran deal or walks away from it is irrelevant to the global oil market or prices. The global oil market has had enough time to factor in the probability of US withdrawal from the deal. A re-introduction of sanctions on Iran will neither impact on the global oil market nor on oil prices.

    And contrary to what many analysts including Mr Nephew are predicting, Iran’s oil exports will not lose a single barrel of oil as a result of the forthcoming sanctions. Moreover, Iran will be pricing its oil exports and being paid for its exports by the petro-yuan thus bypassing the petrodollar and also nullifying US sanctions. Furthermore, most of Iran’s oil exports go to China and other Asia-Pacific region. Any reduction in imports of Iranian oil by countries cooperating with US sanctions will be more than offset by increases of exports to China. China and Russia and probably the European Union (EU) and many countries in the world will refuse to cooperate with US sanctions.

    The pre-Iran nuclear deal’s sanctions worked against Iran’s oil exports because of a combination of the EU’s sanctions on global insurance companies insuring Iranian oil cargoes and US sanctions on banking making it difficult for Iran to receive payments for its oil imports in petrodollar.

    The EU is not going to walk away from the Iran nuclear deal and therefore it will not be imposing any sanctions on Iran thus further weakening US sanctions and Iran will be using the petro-yuan and the euro for its oil sales thus bypassing the petrodollar altogether.

    And while Iran has the option to retaliate against President Trump by restarting some restricted nuclear activities, the Iranian leadership may not opt for such action so as to expose the United States as the defaulter and also not to give the United States the excuse to start a war with Iran egged by the Israel.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • paul on May 01 2018 said:
    Who in this country believes that a secret deal made by John Kerry and BHO with IRAN was a good one? $150 billion in cash and foreign currencies in a clandestine drop from military planes....sounds like a deal to me...oh and we did the same in NK but supplied two nuclear reactors on top of it all.

    Iran, North Korea and Syria are one in the same, all puppet shows put on by the global elites to continue the cycle of war.

    Humans do not yearn for war and yet the elites use war to self enrich and gather up more money and assets while financing the military industrial complex.

    I fully expect that IRAN/Obama dynamic will be exposed in the months ahead.
    Buckle up.
  • Rob Parker on May 01 2018 said:
    ...political theater- the IAEA has known about Project Amad since 2011 before the signing of the JCPOA agreement in 2015. Many of Netanyahu's slides were from 1999 - 2003, after which a U.S. National Intelligence Estimate said the program had been shut down. Bibi and trump are desperately trying to deflect from their current political and personal problems. Moreover, Netanyahu did not show that Iran has broken the agreement:.

    https://www.theatlantic.com/international/archive/2018/04/netanyahu-iran-nuclear-deal/559250/

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