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Why the JCPOA Won’t Turn Iran Into the Next Saudi Arabia

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Of all the anxieties surrounding this summer’s groundbreaking accord between the United States and the Islamic Republic of Iran, concern over oil has been among the most prevalent. Once the terms of the Joint Comprehensive Plan of Action (JCPOA) are firmly in place, sanctions on Iran’s economy, including a set of rigorous restrictions on its oil industry, will begin to recede.

This could unleash a potentially-gargantuan supply of Iranian oil onto an already-saturated world oil market and augment the abilities of the Islamic Republic to influence regional politics. The Washington Institute has warned that a “post-sanctions windfall” will allow Iran to “rescue the Syrian regime, reshape Iraq’s political environment, expand its terrorist proxy activities in various theaters, and otherwise amplify the effects of its destabilizing regional posture.”

There is fuel for such speculation. Iran has the fourth-highest proven oil reserves in the world, and the second-largest gas reserves. If it gains the ability to tap these enormous resources, Iran could potentially become a major world oil and gas producer, rivaling Saudi Arabia, its major regional competitor.

Yet it is far from certain that the JCPOA will have anything like the cataclysmic effect some have predicted. Moreover, it is questionable how far Iran will push its newly-freed oil economy once sanctions are lifted, with a host of infrastructural challenges, as well as some compelling historical experience, potentially foiling the country’s rise into major petro-state status.

Before the U.S. began pressuring it to give up its nuclear ambitions, Iran was a major oil exporter, second only to Saudi Arabia among the OPEC member-states. Production reached 4 million barrels per-day (bpd) in 2007 before dropping to 3.6 million bpd in 2011; sanctions took that down to 2.85 million bpd by July of 2015, with exports dropping from 2.6 million bpd to 1.4 million bpd.

Expectations for Iran to immediately increase its production one sanctions begin to taper off are high. Iran’s oil minister Bijan Zhanganeh boasted in July that Iran would increase its national production by 1 million bpd within one month of sanctions being lifted. While more moderate analysts debate this figure, most agree that Iranian production will increase by the end of 2015, dropping the anticipated price of crude by $10-12 per barrel.

While the impact of greater Iranian production could further depress oil prices which have struggled for over a year, Iran will likely experience a sudden economic stimulus. The World Bank estimates that Iran’s economic growth forecast for 2016 could increase from 3% to a robust 5% if the JCPOA is approved, signaling a real end to the economic stagnation that set in with the sanctions regime.

Commentators and skeptics of the Iran deal have suggested that Iran’s aspirations to regional hegemony will finally become attainable once oil revenues are freed from sanctions limitations. There is the immediate impact of $150 billion in frozen assets to consider, money Iran will potentially be able to access once sanctions are lifted. This enormous windfall along with greater oil revenues will lead to a more strident Iranian policy, challenging Saudi and Gulf interests and ratcheting up support for Bashar al-Assad’s regime in Syria.

But considerable debate surrounds the precise amount of capital Iran has locked away in overseas accounts: $150 billion is the oft-quoted sum, but the Obama Administration has dropped its estimate from $100 billion to $50 billion, and one analysis in Fortune based on information from Iran’s Central Bank suggests that only $29 billion will be immediately available.

Depressed world oil prices will likely increase Iran’s oil revenues by a relatively small amount, from $50 billion to about $65 billion, roughly what it was earning in 2013 before prices fell. Rather than a sudden, tremendous surge in new assets, Iran will see a modest and gradual financial windfall over the course of 2016 and 2017.

How that new income will affect Iran’s foreign policy is difficult to say with any precision. The regime spends an estimated $10 billion per year on foreign “adventures” like the wars in Syria and Yemen, yet this amount dropped in 2014 in light of lower oil prices and seems trifling when compared to the amounts spent by Riyadh on similar endeavors. Saudi Arabia military spending surpasses that of Iran by five times and the UAE’s small force spends 50% more than Tehran on new weapon systems and arms. It is unlikely that any increase in oil revenues will upset this balance.

Support for Iran’s regional allies, proxies and clients will likely be overshadowed by investment that Iran will direct towards is domestic oil industry. Some of Iran’s most important oil fields are 70 years old and after a decade of sanctions the country’s infrastructure, from the wellhead to the refinery, has suffered considerable degradation for want of investment. Even the CIA, in a recent intelligence analysis, predicts that Iran’s economy will take precedence over support for regional allies.

An estimate from Iran’s oil ministry puts the total cost of industry upgrades at $200 billion, roughly half of Iran’s gross domestic product. Iran will have to pump a considerable amount of its new revenues into re-building its industry, and while external agents (including the massive Western oil firms like Royal Dutch-Shell, ENI and Total) have shown considerable interest in investing, the Obama Administration continues to warn off American companies, arguing that Iran’s aging infrastructure makes it a poor candidate for increased investment.

Even if its production reaches former levels, Iran must fight to win back market share from Saudi Arabia, which has increased its own production to record levels in order to force out new producers and bring the price back up. Saudi Arabia dominates the oil market and will likely continue to do so, as its production level (nearly 10 mbd) dwarfs that of Iran. Iran must effectively triple its current production level in order to compete, a feat that could take decades to accomplish.

Finally, a strong historical argument exists that might very well deter Iran from aggressively embracing increased oil production. Oil revenues largely funded the 1960s and 1970s regime of Mohammed Reza Shah Pahlavi, who pumped most of the country’s earnings into its military and expansive modernization programs. The Shah’s policies made Iran a regional power but over-heated the economy, created powerful inflationary effects and so destabilized his regime that it collapsed in the 1978-79 Islamic Revolution.

Ayatalloh Ruhollah Khomeini, Iran’s Supreme Leader, cut Iran’s oil production in half after 1980, causing it to fall from 6.6 million bpd to 3 million bpd. He believed Iran needed a “revolutionary economy” separate from the wider capitalist world.

Khomeini may have been driven by ideological concerns more than hard economics, but his reasoning was largely validated by post-1970s scholarship. Influential texts by Terry Lynn Karl, Hossein Mahdavy and Richard Auty point to a “resource curse” that affects country’s overly dependent on export earnings and rents from oil production. Today, oil-rich economies like Venezuela and Russia are struggling with such dependence.

If history is any guide, Iran will likely steer clear of such a policy, using its new oil revenues to bolster domestic economic growth and infrastructural development, shoring up the political support for its hardline regime (which has staked a considerable amount on reducing sanctions) while continuing its support for regional proxies and allies. The effect of a sanctions-free Iranian oil industry may take some years to reveal itself, but it is unlikely to be as dramatic as some have speculated. After all, the world oil market remains glutted; the Middle East remains a region riven by conflict; and neither the U.S. nor Iran have indicated that they plan to alter the nature of their postures towards one another. Iran’s oil may alter this situation, but it probably won’t upend it completely.

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Middle East

Will Oman Succeed In What The UN And US Envoys Failed In Yemen?

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Since taking office on January 20, US President Joe Biden has made a priority for Yemen and appointed Tim Linderking as the US special envoy to Yemen to seek an end of the war that has been going on for more than six years, which made Yemen live “the worst humanitarian crisis in the world”, as described by the United Nations.

Nearly four months after his appointment as a special envoy to Yemen, and after several visits to the region, and several meetings through Omani coordination with representatives of the Houthi movement in Muscat, Linderking returned to the United States empty-handed, announcing that the Houthis are responsible for the failure of the ceasefire to take hold in Yemen. The US State Department said “While there are numerous problematic actors inside of Yemen, the Houthis bear major responsibility for refusing to engage meaningfully on a ceasefire and to take steps to resolve a nearly seven-year conflict that has brought unimaginable suffering to the Yemeni people”.

Two days only after the US State Department statement, which blamed the Houthis for the failure of the peace process in Yemen, an Omani delegation from the Royal Office arrives in Sana’a. What are the goals behind their visit to Sana’a, and will the Omani efforts be crowned with success?

Houthi spokesman Muhammad Abdul Salam said that “the visit of a delegation from the Omani Royal Office to Sanaa is to discuss the situation in Yemen, arrange the humanitarian situation, and advancing the peace process”. However, observers considered that the delegation carried an American message to the Houthi leader as a last attempt to pressure the Houthis to accept a ceasefire, and to continue the peace efforts being made to end the war and achieve peace, especially after the failure of all intensive efforts in the past days by the United Nations and the United States of America to reach a ceasefire as a minimum requirement for peace.

Oman was the only country in the Gulf Cooperation Council that decided not to participate in what was called “Operation Decisive Storm”, led by Saudi Arabia following its consistent policy of non-interference. Due to its positive role since the beginning of the crisis and its standing at the same distance from all the conflicting local and regional parties in Yemen, it has become the only qualified and trusted party by all the conflicting parties, who view it as a neutral side that has no interest in further fighting and fragmentation.

On the local level, Oman enjoys the respect and trust of the Houthis, who have embraced them and their negotiators for years and provided them with a political platform and a point of contact with the international parties concerned with solving the Yemeni problem, as well as embracing other political parties loyal to the legitimate government, especially those who had a different position to the Saudi-Emirati agenda during the last period.

At the regional level, Oman maintains strong historical relations with the Iran, and it is a member of the Gulf Cooperation Council, and this feature enables it to bring the views between the two sides closer to reach a ceasefire and ending the Yemeni crisis that has raved the region for several years as a proxy war between the regional rivalries Saudi Arabia and Iran.

Oman now possesses the trust and respect of all local, regional and international parties, who resorted to it recently and they are all pushing to reach a ceasefire and ending the crisis, after they have reached a conviction that it is useless. So the Omani delegation’s public visit to Sana’a has great connotations and an important indication of the determination of all parties to reach breakthrough in the Yemeni crisis.

The international community, led by the United States, is now looking forward to stop the war in Yemen. Saudi Arabia also is looking for an end to the war that cost the kingdom a lot and it is already presented an initiative to end the Yemeni crisis, as well as Iran’s preoccupation with its nuclear program and lifting of sanctions.

Likewise, the conflicting local parties reached a firm conviction that military resolution is futile, especially after the Houthis’ failed attempt for several months to control Marib Governorate the rich of oil and gas and the last strongholds of the government in the north, which would have changed the balance of power in the region as a whole.

Despite the ambiguity that is still surrounding the results of the Omani delegation’s visit to Sana’a so far, there is great optimism to reach a cease-fire and alleviate the humanitarian crisis and other measures that pave the way for entering into the political track to solve the Yemeni crisis.

The situation in Yemen is very complicated and the final solution is still far away, but reaching a ceasefire and the start of negotiations may be a sign of hope and a point of light in the dark tunnel of Yemenis who have suffered for years from the curse of this war and its devastating effects.

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Saudi Arabia steps up effort to replace UAE and Qatar as go-to regional hub

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Saudi Arabia has stepped up efforts to outflank the United Arab Emirates and Qatar as the Gulf’s commercial, cultural, and/or geostrategic hub.

The kingdom has recently expanded its challenge to the smaller Gulf states by seeking to position Saudi Arabia as the region’s foremost sport destination once Qatar has had its moment in the sun with the 2022 World Cup as well as secure a stake in the management of regional ports and terminals dominated so far by the UAE and to a lesser extent Qatar.

Saudi Arabia kicked off its effort to cement its position as the region’s behemoth with an announcement in February that it would cease doing business by 2024 with international companies whose regional headquarters were not based in the kingdom. 

With the UAE ranking 16 on the World Bank’s 2020 Ease of Doing Business Index as opposed to Saudi Arabia at number 62, freewheeling Dubai has long been international business’s preferred regional headquarters.

The Saudi move “clearly targets the UAE” and “challenges the status of Dubai,” said a UAE-based banker.

A latecomer to the port control game which is dominated by Dubai’s DP World that operates 82 marine and inland terminals in more than 40 countries, including Djibouti, Somaliland, Saudi Arabia, Egypt, Turkey and Cyprus, the kingdom’s expansion into port and terminal management appears to be less driven by geostrategic considerations.

Instead, Saudi Arabia’s Red Sea Gateway Terminal (RSGT), backed by the Public Investment Fund (PIF), the kingdom’s sovereign wealth fund, said it was targeting ports that would service vital Saudi imports such as those related to food security.

PIF and China’s Cosco Shipping Ports each bought a 20 per cent stake in RSGT in January.

The Chinese investment fits into China’s larger Belt and Road-strategy that involves the acquisition regionally of stakes in ports and terminals in Saudi Arabia, Sudan, Oman, and Djibouti, where China has a military base.

RSGT Chief Executive Officer Jens Floe said the company planned to invest in at least three international ports in the next five years. He said each investment would be up to US$500 million.

“We have a focus on ports in Sudan and Egypt. They weren’t picked for that reason, but they happen to be significant countries for Saudi Arabia’s food security strategy,” Mr. Floe said.

Saudi Arabia’s increased focus on sports, including a potential bid for the hosting of the 2030 World Cup serves multiple goals: It offers Saudi youth who account for more than half of the kingdom’s population a leisure and entertainment opportunity, it boosts Crown Prince Mohamed bin Salman’s burgeoning development of a leisure and entertainment industry, potentially allows Saudi Arabia to polish its image tarnished by human rights abuse, including the 2018 killing of Saudi journalist Jamal Khashoggi, and challenges Qatar’s position as the face of Middle Eastern sports.

A recent report by Grant Liberty, a London-based human rights group that focuses on Saudi Arabia and China, estimated that the kingdom has so far invested in US$1.5 billion in the hosting of multiple sporting events, including the final matches of Italy and Spain’s top soccer leagues; Formula One; boxing, wrestling and snooker matches; and golf tournaments. Qatar is so far the Middle East’s leader in the hosting of sporting events followed by the UAE.

Grant Liberty said that further bids for sporting events worth US$800 million had failed. This did not include an unsuccessful US$600 million offer to replace Qatar’s beIN tv sports network as the Middle Eastern broadcaster of European soccer body UEFA’s Champions League.

Saudi Arabia reportedly continues to ban beIN from broadcasting in the kingdom despite the lifting in January of 3.5 year-long Saudi-UAE-led diplomatic and economic boycott of Qatar.

Prince Mohammed’s Vision 2030 plan to diversify and streamline the Saudi economy and ween it off dependency on oil exports “has set the creation of professional sports and a sports industry as one of its goals… The kingdom is proud to host and support various athletic and sporting events which not only introduce Saudis to new sports and renowned international athletes but also showcase the kingdom’s landmarks and the welcoming nature of its people to the world,” said Fahad Nazer, spokesperson for the Saudi Arabian embassy in Washington.

The increased focus on sports comes as the kingdom appears to be backing away from its intention to reduce the centrality of energy exports for its economy.

Energy minister Prince Abdulaziz bin Salman, Prince Mohammed’s brother, recently ridiculed an International Energy Agency (IEA) report that “there is no need for investment in new fossil fuel supply” as “the sequel of the La La Land movie.” The minister went on to ask, “Why should I take (the report) seriously?”

Putting its money where its mouth is, Saudi Arabia intends to increase its oil production capacity from 12 million to more than 13 million barrels a day on the assumption that global efforts to replace fossil fuel with cleaner energy sources will spark sharp reductions in US and Russian production.

The kingdom’s operating assumption is that demand in Asia for fossil fuels will continue to rise even if it drops in the West. Other Gulf producers, including the UAE and Qatar, are following a similar strategy.

“Saudi Arabia is no longer an oil country, it’s an energy-producing country … a very competitive energy country. We are low cost in producing oil, low cost in producing gas, and low cost in producing renewables and will definitely be the least-cost producer of hydrogen,” Prince Abdulaziz said.

He appeared to be suggesting that the kingdom’s doubling down on oil was part of strategy that aims to ensure that Saudi Arabia is a player in all conventional and non-conventional aspects of energy. By implication, Prince Abdulaziz was saying that diversification was likely to broaden the kingdom’s energy offering rather than significantly reduce its dependence on energy exports.

“Sports, entertainment, tourism and mining alongside other industries envisioned in Vision 2030 are valuable expansions of the Saudi economy that serve multiple economic and non-economic purposes,” “ said a Saudi analyst. “It’s becoming evident, however, that energy is likely to remain the real name of the game.”

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Iranians Will Boycott Iran Election Farce

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Iran and elections have not been two synonymous terms. A regime whose constitution is based on absolute rule of someone who is considered to be God’s representative on earth, highest religious authority, morality guide, absolute ruler, and in one word Big Brother (or Vali Faqih), would hardly qualify for a democracy or a place where free or fair elections are held. But when you are God’s rep on earth you are free to invent your own meanings for words such as democracy, elections, justice, and human rights. It comes with the title. And everyone knows the fallacy of “presidential elections” in Iran. Most of all, the Iranian public know it as they have come to call for an almost unanimous boycott of the sham elections.

The boycott movement in Iran is widespread, encompassing almost all social and political strata of Iranian society, even some factions of the regime who have now decided it is time to jump ship. Most notably, remnants of what was euphemistically called the Reformist camp in Iran, have now decided to stay away from the phony polls. Even “hardline” former president Mahmoud Ahmadinejad realizes the extent of the regime’s woes and has promised that he will not be voting after being duly disqualified again from participating by supreme leader’s Guardian Council.

So after 42 years of launching a reformist-hardliner charade to play on the West’s naivety, Khamenei’s regime is now forced to present its one and true face to the world: Ebrahim Raisi, son of the Khomeinist ideology, prosecutor, interrogator, torturer, death commission judge, perpetrator of the 1988 massacre of political prisoners, chief inquisitionist, and favorite of Ali Khamenei.

What is historic and different about this presidential “election” in Iran is precisely what is not different about it. It took the world 42 years to cajole Iran’s medieval regime to step into modernity, change its behavior, embrace universal human rights and democratic governance, and treat its people and its neighbors with respect. What is shocking is that this whole process is now back at square one with Ebrahim Raisi, a proven mass murderer who boasts of his murder spree in 1988, potentially being appointed as president.

With Iran’s regime pushing the envelope in launching proxy wars on the United States in Iraq, on Saudi Arabia in Yemen, and on Israel in Gaza and Lebanon, and with a horrendous human rights record that is increasingly getting worse domestically, what is the international community, especially the West, going to do? What is Norway’s role in dealing with this crisis and simmering crises to come out of this situation?

Europe has for decades based its foreign policy on international cooperation and the peaceful settlement of disputes, and the promotion of human rights and democratic principles. The International community must take the lead in bringing Ebrahim Raisi to an international court to account for the massacre he so boastfully participated in 1988 and all his other crimes he has committed to this day.

There are many Iranian refugees who have escaped the hell that the mullahs have created in their beautiful homeland and who yearn to one day remake Iran in the image of a democratic country that honors human rights. These members of the millions-strong Iranian Diaspora overwhelmingly support the boycott of the sham election in Iran, and support ordinary Iranians who today post on social media platforms videos of the Mothers of Aban (mothers of protesters killed by regime security forces during the November 2019 uprising) saying, “Our vote is for this regime’s overthrow.” Finally, after 42 years, the forbidden word of overthrow is ubiquitous on Iranian streets with slogans adorning walls calling for a new era and the fall of this regime.

Europe should stand with the Iranian Resistance and people to call for democracy and human rights in Iran and it should lead calls for accountability for all regime leaders, including Ebrahim Raisi, and an end to a culture of impunity for Iran’s criminal rulers.

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