Using Oil Bargaining Chip on Iran Nuclear Deal Negotiation Table

Using Oil Bargaining Chip on Iran Nuclear Deal Negotiation Table

As the Ukraine crisis is increasing the West’s need for energy from other sources than Russia. Many experts refer to Iranian energy resources as a potential solution to the current energy crisis and a factor that can stabilize the fluctuated oil markets.

There are also analysts who predict that the oil factor has given Iran an edge in its nuclear talks with the so-called P5+1 (China, France, Russia, the UK, and the US plus Germany). The confidence that Iran is now enjoying has prompted more bold Iranian demands, which stood as stumbling blocks on the way to reaching the final deal. One of the controversial demands by Iran is the removal of its Islamic Revolutionary Guard Corps (IRGC) from the US list of foreign terrorist organizations. Iran is also asking for guarantees that the pact will not be annulled if Republicans come to power at any time.

The US administration is torn between its desire to reduce oil prices and the political dangers of reaching a deal that doesn’t do enough to limit Iranian proliferation or the country’s destabilizing activities.

As news reports suggest that the signing of a new deal is imminent, critics of the deal are highlighting their doubts about the ability of the deal to end Iran’s destabilizing behavior in the region. They also expressed their doubts about the Iranian ability to replace Russian production and their desire to do anything that can upset Russia.

Hard Talks

When US President Joe Biden came into office in January 2021, restarting negotiations with Iran over reviving the nuclear deal was on top of his foreign policy agenda for the Middle East.

The Comprehensive Plan of Action (JCPOA), or what is commonly known as the Iran nuclear deal, is a landmark 2015 pact that offered Iran relief from nuclear-related sanctions in exchange for accepting constraints on its nuclear program, ensuring it could not pursue a nuclear weapon in the near term.

Former US President Donald Trump withdrew from the deal in 2018 and imposed additional sanctions on Iran, which gave Iran a chance to take a further step towards its aim to develop nuclear arms.

The new deal would require Iran to stop operating its new advanced centrifuges, which progressively enrich uranium from the levels needed for energy generation to the levels needed for warheads.

Nevertheless, a deal is facing big political opposition inside the US as it’s seen as much weaker than the original one as it would leave Iran in possession of a new generation of advanced centrifuges that it began operating after Trump pulled out of the deal.

The request of Iran to remove IRGC from the terrorist list raises concern from Republican lawmakers and US allies in the Middle East, that it would empower a wing of the regime that is at the heart of fomenting terrorism and instability in the region and elsewhere.

The Oil Card

Following the start of the Russia-Ukraine crisis, a majority of Iranian lawmakers have suggested that Iran should use the opportunity provided by instability in the global energy markets and push its demands in nuclear talks in Vienna.

Iran may have up to 90 million barrels of crude and condensate stored on land in its territory, at sea, and in tanks, enough to add about 1 million barrels per day to the market for three months.

Experts expect it would take Iran only a few months to gear up to the full pre-sanctions crude output of 3.8 mb/d, of which around 2 mb/d would be available for exportation.

Although Iran’s full return would not fully offset Russian supplies, it would be a significant contribution. Lifting sanctions would also help Iran’s gas sector in eliminating restrictions on the marketing of condensate and allow the purchase of compression equipment, badly needed at the colossal South Pars field), where production will otherwise decline rapidly after 2023 as the pressure in the reservoir depletes due to extraction of the gas.

Iran is already shifting more oil onto ships in a move to speed exports should talks succeed in ending its exclusion from global energy markets at any time soon; and there was no wonder to find oil markets reacting to any positive news of the deal.

However, several analysts doubt the ability of Iran to interfere in the oil markets in a way that can annoy Russia, one of its important allies, especially with the growing untrust between Tehran and Washington.

Iran has been using the oil factor in a carrot and sticks policy where it’s not only able to send more contributions to the oil market but also able to disrupt important supplies from the Gulf Countries through terrorist acts by its proxies in Yemen and Iraq.

A Dangerous Deal

A total blockade of Russian oil and gas could be the best scenario for Iranians today as European governments with dire needs for energy may go for a deal on their own. If the energy crisis on the European continent worsens, some European countries will be even willing to break out of the current US-EU cooperation fold on the Iranian issue.

At the same time, Saudi Arabia and the UAE are unpleased with the prospects of a new deal. They are worried about Iranian adventurism and the lack of an explicit US security provision, possibly with more serious attacks against oil and gas infrastructure in the Gulf states.

The expected deal also risks a nuclear-arms race in the Middle East and more strikes against Iran that could escalate out of hand.

In mid-April, around 50 retired US military officers wrote an open letter to the Biden administration indicating that the new nuclear agreement with Iran is likely to “instantly fuel explosive Iranian aggression.”

The signatories of the letter indicated that the deal “will enable the world’s leading state sponsor of terrorism to cast its own nuclear shadow over the Middle East”.

In another letter, Senator Joe Manchin, a top Democratic senator, warned the Biden administration against turning to Iran for oil as the White House continues to eye a new nuclear deal with the country.

“While I support President Biden’s commitment to reengaging the Government of Iran in diplomacy, we should not reward Iran with sanctions relief before they demonstrate verifiable efforts towards curbing their malign influence holistically,” Manchin said.

“Let me be clear, the IRGC is a terrorist organization. We must not be shortsighted in the use of sanctions relief to mitigate our present energy challenges”, Manchin added.

Still, we have to wait and see if the west going to prioritize its energy needs over its concerns regarding Iran’s nuclear program.


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