Connect with us

Middle East

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

Published

on

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.

Continue Reading
Comments

Middle East

Saudi oil attacks put US commitments to the test

Dr. James M. Dorsey

Published

on

Neither Saudi Arabia nor the United States is rushing to retaliate for a brazen, allegedly Iranian attack that severely damaged two of the kingdom’s key oil facilities.

That is not to say that Saudi Arabia and/or the United States will not retaliate in what could prove to be a game changer in the geopolitics of the Middle East.

Yet, reading the tea leaves of various US and Saudi statements lifts the veil on the constituent elements that could change the region’s dynamics.

They also shine a spotlight on the pressures on both countries and shifts in the US-Saudi relationship that could have long lasting consequences.

With US Secretary of State Mike Pompeo visiting the kingdom to coordinate what his office described as efforts to combat “Iranian aggression in the region,” Saudi Arabia and the United States will be seeking to resolve multiple issues.

These include collecting sufficient evidence to convincingly apportion blame; calibrating a response that would be appropriate but not drag the United States and the Middle East into a war that few want; deciding who takes the lead in any military response and managing the long-term impact of that  decision on Saudi-US relations and the US commitment to the region.

A careful reading of Saudi and US responses to the attacks so far suggests subtle differences between the two. They mask fundamental issues that have emerged in the aftermath of the attacks.

For starters, Mr. Pompeo and President Donald J. Trump have explicitly pointed the finger at Iran as being directly responsible, while Saudi Arabia stopped short of blaming the Islamic republic, saying that its preliminary findings show that Iranian weapons were used in the attack. Iran has denied any involvement.

The discrepancy in the initial apportioning of blame raises the question whether Saudi Arabia is seeking to avoid being manoeuvred into a situation in which it would be forced to take the lead in retaliating against the Islamic republic with strikes against targets in Iran rather than Yemen.

Political scientist Austin Carson suggests that Saudi Arabia may have an interest in at least partially playing along with Iranian insistence that it was not responsible. “Allowing Iran’s role to remain ambiguous could reduce Saudi leaders’ need to appear strong… The Saudis are reportedly unconvinced by shared US intelligence that attempts to link the attacks to Iran’s territory. Some experts suggest this may reflect a more cautious approach to escalation,” Mr. Carson wrote in The Washington Post.

Saudi Arabia’s initial reluctance to unambiguously blame Iran may have a lot to do with Mr. Trump’s America First-driven response to the attacks that appeared to contradict the Carter Doctrine proclaimed in 1980 by President Jimmy Carter.

The doctrine, a cornerstone of the Saudi-US relationship, stated that the United States would use military force, if necessary, to defend its national interests in the Gulf.

Mr. Trump’s apparent weakening of the United States’ commitment to the defense of the kingdom, encapsuled in the doctrine, risks fundamentally altering the relationship, already troubled by Saudi conduct of the more than four-year long war in Yemen and last year’s killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.

Signalling a break with the Carter doctrine, Mr. Trump was quick to point out that the attacks were on Saudi Arabia, not on the United States, and suggested that it was for the Saudis to respond.

“I haven’t promised Saudis that. We have to sit down with the Saudis and work something out. That was an attack on Saudi Arabia, and that wasn’t an attack on us. But we would certainly help them,” Mr. Trump said without identifying what kind of support the US would be willing to provide.

Despite blustering that the United States was “locked and loaded,” Mr. Trump insisted that “we have a lot of options but I’m not looking at options right now.”

Mr. Trump’s response to a tweet by US Senator Lindsey Graham, a friend of the president who favours a US military strike against Iran, that “the measured response by President @realDonaldTrump…was clearly seen by the Iranian regime as a sign of weakness” was equally telling.

No Lindsey, it was a sign of strength that some people just don’t understand.” Mr. Trump said.

Mr. Trump further called into question the nature of the US-Saudi defense relationship by declaring that “If we decide to do something, they’ll be very much involved, and that includes payment. And they understand that fully.”

The Saudi foreign ministry maintained, with the attacks casting doubt on the Saudi military’s ability to defend the kingdom’s oil assets and Mr. Trump seemingly putting the onus of a response on Saudi Arabia, that “the kingdom is capable of defending its land and people and responding forcefully to those attacks.”  

Only indisputable evidence that the drones were launched from Iranian territory would incontrovertibly point the finger at Iran.

So far, the Saudis have stopped short of that while US officials have suggested that the drones were launched either from Iran or by pro-Iranian militias in southern Iraq.

Holding Iran responsible for the actions of a militia, whether in Iraq or Yemen, could prove more tricky given long-standing questions about the degree of control that Iran has over various groups that it supports, and particularly regarding the Houthis.

The argument could turn out to be a slippery slope given that by the same logic, the United States would be responsible for massive human casualties in the Yemen war resulting from Saudi use of American weaponry.

Military retaliation may not be immediate even if the United States and Saudi Arabia can produce convincing evidence that Iran was directly responsible.

No knee jerk reactions to this – it’s very systematic – what happens with patience is it prevents stupid moves,” a US official said.

The United States is likely to attempt to first leverage that evidence in meetings on the sidelines of next week’s United Nations General Assembly to convince the international community, and particularly the Europeans, to drop opposition to last year’s US withdrawal from the international nuclear accord with Iran and the harsh economic sanctions that the Trump administration has since imposed on Iran.

Both the United States and Saudi Arabia will also want to use the opportunity of the UN gathering to try to ensure that the fallout of any military response is limited and does not escalate into a full-fledged war that could change the geopolitical map of the Middle East.

Said foreign policy analyst Steven A. Cook: “How the Trump administration responds will indicate whether U.S. elites still consider energy resources a core national interest and whether the United States truly is on its way out of the Middle East entirely, as so many in the region suspect.”

Continue Reading

Middle East

Growing Tensions on the Road to Persian Gulf Security

Published

on

The 14 September 2019 drone attacks on oil installations in eastern Saudi Arabia have dimmed hope for U.S. – Iranian discussions aimed to reduce tensions and potentially end the armed conflict in Yemen.  Tensions have increased, and oil prices have risen. Certain hopes created by the initiatives of the French President during the G7 meeting in Biarritz, France and the forced departure of John Bolton as U.S. National Security Advisor have lessened.  In fact, the aim of the attacks may have been to lessen the possibility of Iran – U.S. discussions which might have taken place during the start of the U.N. General Assembly in New York later in September.

There is a good deal of speculation as to who fired the drones and from where.  The Ansar Allah Movement (often called the Houthis) has taken credit, but some specialists doubt that they have  the technical knowhow to send drones from Yemen to the targets in Saudi Arabia.  Some speculate that the drones were sent from southern Iraq, possibly by Iranian-backed militias such as the Popular Mobilization Forces or by units of the Iranian Revolutionary Guards stationed in Iraq.  The Revolutionary Guards are nearly “a state within the state” and could take initiatives without orders from the Iranian President or the Foreign Minister.  The Revolutionary Guards could have motivations to prevent fruitful U.S. – Iranian talks at the U.N.  There is also speculation that the drone attacks could be linked to increased tensions between Saudi Arabia and the United Arab Emirates concerning the future of south Yemen where the two countries support different factions.

Whatever the locations from which the drones were launched and whomever pulled the switch, the consequences are clear.  At a time when governments were speaking of a possible path to reduce tensions a “No Exit” sign has been put up near the start of the road.  The road leads to ever-greater tensions which may slip out of the control of governments.  Thus, in addition to the French proposal at the G7, there was an earlier Russian government proposal.

On 23 July 2019, the Russian Government’s “Collective Security for the Persian Gulf Region” was presented in Moscow by the Deputy Foreign Minister, Mikhail Bogdanov.  The Russian proposal for Collective Security for the Persian Gulf follows closely the procedures which led to the 1975 Helsinki Final Act and the creation of the Conference on Security and Cooperation in Europe.  Bogdanov stressed multilateral ism as a mechanism for all involved in the assessment of situations, the decision-making process, and  the implementation of decisions.

It is not clear how the Russian proposal for a Helsinki-type conference will progress.  Russia does not play a leading role in the Middle East today as the USSR did in Europe in the 1970s.  In the lead up to the Helsinki Accords of 1975, non-governmental organizations had played an active role in informal East-West discussions to see what issues were open to negotiations and on what issues progress might be made.  There is a need for such non-governmental efforts today as the Persian Gulf and the wider Middle East are growing ever-more tense.

Continue Reading

Middle East

Algeria’s political impasse: What is next?

Published

on

Seven months after a wave of protests began in Algeria; people are still pilling onto the streets of the Algerian capital “Algiers” and other cities nationwide every Friday, reiterating their main demands: the departure of the regime and its symbols and the application of Articles 7 and 8 of the Constitution stating that the constituent power belongs to the people.

The demonstrations have gained a familiar rhythm and worldwide admiration since tens of thousands of Algerians first took, peacefully, to the streets on 22 February. Thousands of students turn out on Tuesdays and there are larger protests each Friday revolting against former opaque group of power-brokers that have run the country for decades.
After weeks of mass demonstrations, President of the Republic Abdelaziz Bouteflika stepped down, ceding power after 20 years of rule and abandoning his re-election bid. The protesters pressured the authorities, again, to cancel presidential elections originally scheduled for April.
Despite the postponement of the election, the public anger continued to mount. Thus, Army chief Gaid Salah emerged as the key powerbroker positioning himself in favor of El Hirak “Popular movement”. He publicly disavowed the former leader and called for his impeachment, winning legitimacy in the streets.

Purging Corruption

Gaid Salah responded favorably to protesters’ demands, launching a sweeping anti-graft campaign targeting high-ranked officials that have served the Bouteflika government as well as influential tycoons and businessman.

Two Prime Ministers, namely; Ahmed Ouyahia and Abdelmalek Sellal, the deposed President’s brother Said Bouteflika, tens of ministers, leading industrialists, tycoons, key businessmen, Governors,  and two former Intelligence chiefs, have been remanded in custody for accusations ranging from money laundering, embezzlement, misuse of public money to using officials posts to influence industrial and commercial contracts and granting undue privileges, affiliation to suspicious parties that plot to destabilize the country, plotting against the army, and instigating the opposition to call for a transitional phase before holding any election.

Bouteflika’s resignation puts Abdelkader Bensalah, Speaker of the upper house of parliament, in charge as caretaker Head of State for 90 days until elections are held. However, elections (scheduled for July 4th) have been postponed for a second time and protesters are demanding his departure.

For his part, Bensalah, and in a bid to calm them, set a Panel of Dialogue and Mediation, composed of political actors, the civil society, the representatives of the trade union organizations and many citizens, with the aim to mediate between public authorities and people  and hold a “serious and responsible” dialogue to reach a national consensus which would help resolve the political crisis in Algeria, through the organization of a fair and transparent presidential election, as soon as possible.”

However, the Panel itself is facing rejection by protesters who are taking into the streets denouncing its formation, saying it does not represent them along other claims, such as the departure of Bensalah, a former head of the upper house of parliament, and Prime Minister Noureddine Bedoui, who are regarded by them as part of the old guard.

Despite all these arrangements, Algeria is still at an impasse, with two camps facing each other in seemingly irreconcilable positions.

To resolve this stalemate, Lieutenant General Ahmed Gaïd Salah, Deputy Minister of  National Defence, Chief of Staff of the People’s National Army (ANP), launched, last week, a call, saying that it would be “appropriate” to convene the electorate on the 15th of September, and that the elections could be held within the deadlines set by law.

In my previous speech, “I have spoken about the priority to seriously launch the preparation of the presidential elections within the coming weeks, and today, based on our missions, prerogatives and our compliance with the Constitution and the laws of the Republic as well, I confirm that we regard as appropriate to summon the Electorate on September 15th and the elections can be held within the deadlines provided for by the law. Reasonable and acceptable deadlines which respond to the insistent demand of the people,” said Lieutenant General.

Theoretically, if the head of state, Abdelkader Bensalah, summons the electorate on September 15, 2019, as desired by the head of the army, the presidential election should take place before the end of the current year (mid-December).  The Organic Law No. 12-01 2012 (Electoral Code) provides in article 25 that “Subject to the other provisions of this organic law, the electorate shall be convened by presidential decree within three (3) months preceding the date of the elections “.

As a response, Algerian street has expressed its rejection of elections in the current political conditions. According to demonstrators, no election should take place as long as Bouteflika-era officials remain in positions of power.

For their parts, the opposition parties and civil society groups have also demanded the resignation of the government which constitutes “a popular demand”, voicing rejection of the holding of the elections.

The people are determined to pursue the hirak until the establishment of a state of institutions, widening gap between them and the power constrained, for lack of serious candidates, to cancel the vote twice.

According to observers, these presidential elections are unachievable for the moment because the approach advocated by Ahmed Gaid Salah ” requires the revision of some texts of the electoral law to adapt to the requirements of the current situation, and not a total and profound revision that would affect all texts, as claimed by the demonstrators. The partial amendment means the holding of elections basing on the same mode of organization. This is likely to trigger the street again as the popular movement with its magnitude unparalleled in the contemporary history of the country will, likely, sabotage the preparations for this election. The political climate also does not allow the organization of such an election with the absence of total trust between voters and the political class.

However, it is imperative to go quickly to a presidential election provided that it is transparent, where the mediation initiatives of the Panel or other organizations, can lead to a consensual platform far from the occult practices of the past which saw the majority of the population sulking the ballot boxes, reflecting the state-citizen divorce, noting that an independent election monitoring commission and the departure of the Bedoui government are two prerequisites for a transparent presidential election.

This necessarily implies the cleaning up of the electoral file, the creation of an independent election supervision body where neither the executive (the government – especially the Ministry of the Interior and the Walis) nor the deputies/senators and representatives of the current APCs denounced by Al Hirak, will be stakeholders. 

Only a democratically elected legitimate president, elected on the basis of a transparent agenda, pledging to include the legitimate demands of Al Hirak including a new balance of power and the moralization of management (fight against corruption and embezzlement), can amend the constitution and carry out the profound political and economic reforms to bring Algeria to the new world and make it an emerging country: a pivotal country regionally and internationally.

Economically, it is imperative to quickly resolve the political crisis before the end of 2019 or at most the first quarter of 2020, to avoid towards a cessation of payments at the end of 2021 and beginning of 2022, and prevent Algeria the depletion of its foreign exchange reserves which would culminated in the economic, social, political insecurity.

From our partner Tehran Times

Continue Reading

Latest

Energy News2 hours ago

After stalling last year, renewable power capacity additions to hit double-digit growth in 2019

After stalling last year, global capacity additions of renewable power are set to bounce back with double-digit growth in 2019,...

Economy4 hours ago

Foreign direct investment is not coming to Indonesia. Really?

The economic topic receiving most attention in the last few days is certainly that of foreign direct investment, or FDI,...

South Asia8 hours ago

Kashmir: The Unconquerable Will of Kashmiris is still Alive

Every dictatorship flourishes more on the continuing incapacity of the public to examine and evaluate reality in the way that...

Newsdesk14 hours ago

Liquidity Crisis Weighs on An Already Strangled Palestinian Economy

Palestinian Authority (PA) faces a financing gap that could exceed US$1.8 billion for 2019 driven by declining aid flows and...

Science & Technology17 hours ago

How to Design Responsible Technology

Biased algorithms and noninclusive data sets are contributing to a growing ‘techlash’ around the world. Today, the World Economic Forum,...

Reports18 hours ago

Emerging East Asia Bond Markets Continue Growth Despite Risks

Emerging East Asia’s local currency bond market expanded steadily in the second quarter of 2019 despite downside risks stemming from...

Middle East24 hours ago

Saudi oil attacks put US commitments to the test

Neither Saudi Arabia nor the United States is rushing to retaliate for a brazen, allegedly Iranian attack that severely damaged...

Trending

Copyright © 2019 Modern Diplomacy