Takeaway: Iran deal may come too late to avert energy crisis in Europe
Headline-grabber: Iran deal looks closer, but trade and investment flows will take time
Timing is everything…
It’s not done until it’s done, but political analysts and oil market pundits believe a return to the Iran nuclear deal is closer than ever, with US and EU officials examining Iran’s latest proposal.
If – or when – an agreement is reached and the United States ends the sanctions imposed in 2018 when the American president donald trump has withdrawn from the Joint Comprehensive Plan of Action (JCPOA), Iran will once again be open for business in the energy, shipping, metals, automotive, insurance and other sectors.
For businesses and investors, this relaunch of what was called “implementation day” in the 2015 nuclear deal (read it here), is expected to reopen business ties that were closed three years ago.
Timing is important, especially in the energy sector. One million barrels per day (bpd) of Iranian oil entering global supply would be vital, if it happens in the next six months.
Expectations for Iranian oil could help maintain downward pressure on energy prices, which would be good news after the disappointing 100,000 bpd rise added after the so-called OPEC+ deal earlier this month. For Washington, lower energy prices could dampen inflation. For Europe, additional supplies could ease the pain of friction with Russia.
Russian President Vladimir Poutine said it would reduce natural gas exports to Europe. This threatens to crimp industrial production and drive up commodity prices. There is no sign of an end to the Russian-Ukrainian war, nor any sign of diplomacy to end the conflict.
In this context, the Iranian contribution to the world supply, as an energy expert Dan Yergin says Al-Monitor, is “not insignificant”.
Not so fast on gas
Longer term, Iran could increase its exports to 2.8 million bpd over the next two and a half years. This is significant for Iran’s constrained economy, as it could represent $65 billion in additional revenue per year. In addition, the JCPOA could result in the release of over $100-150 billion in frozen assets, Bijan Khajehpour written for Amwaj.
However, the rapid returns in the oil sector may not be matched in the gas sector. Despite having the second largest gas reserves in the world (behind Russia), Iran does not yet have the infrastructure or capacity to supply gas to Europe, even with the lifting of sanctions, in the absence of massive foreign investment over several years, writes Bijan Khajehpur in Al-Monitor Pro.
European energy majors such as Total, Statoil, ENI and Shell, all of which have worked in Iran’s gas sector before, Khajehpour explains, would likely require “some kind of guarantee that their investments would not be sanctioned for the lifetime of their project. , i.e. a minimum of 10 years including the development and operation of a gas field.
European and Western hesitation could extend to investing in other sectors as well, given Iran’s weak financial systems and endemic corruption, even with the sanctions list. The overall approach will be to go slow. However, Russia, China, India and some Middle Eastern countries are expected to intervene.
But don’t expect Russia to compensate for the lack of Western investment in the oil sector. Russia has neither the money nor the expertise to provide Iran with what it needs for a post-sanctions restart. Khajehpour writes for Al-Monitor Pro that in the absence of “major” investments, there will be “new areas of cooperation between the two oil and gas giants, particularly in the areas of support for Russian engineering as well as equipment in NIOC projects, exchange products, collaboration in commercial and operational matters, etc.
The coming days
After a return to the day of “implementation”, the next “days” described in the JCPOA would then come quickly, which has been a concern of Israel in particular, which has argued for a longer and stronger agreement, rather than a return to the 2015 agreement:
Transition Day (October 2023):After the IAEA reports “that all nuclear material in Iran remains in peaceful activities” and ratifies the additional protocol, the UN will end restrictions on missile transfers to Iran, and “the United States States will seek to take appropriate legislative action to terminate, or amend to terminate, the sanctions specified in Annex II on the Acquisition of Nuclear-Related Goods and Services for the Nuclear Activities contemplated in this JCPOA, in order to be consistent with the United States’ approach to other non-nuclear-weapon states under the NPT. ”
Termination day (October 2025):In or around October 2025, and assuming Iran abides by the JCPOA constraints on its nuclear program, the UN would close the Iranian nuclear file.
Fast facts on Iran
4th largest oil reservesbehind Venezuela, Saudi Arabia and Canada.
15th largest army (with 1 million active/reserve/paramilitary forces), behind only Egypt (1.3 million) in the Middle East.
17th in military spending ($19.6 billion), behind Saudi Arabia ($67.6 billion), the United Arab Emirates ($22.75 billion) and Israel ($20 billion) in the Middle East.
18th largest population83.9 million, behind only Egypt (102 million) and Turkey (84.3 million) in the Middle East.
18th largest economy(by GDP; $1.08 trillion), the highest in the Middle East.
From our regional correspondents
1. Foreign currency inflows of unknown origin close to record in Turkey
Mustafa Sonmez has this deep dive on how foreign exchange shortages are weighing on the Turkish economy. In the first half of 2022, the current account deficit reached $32.4 billion, with inflows from unknown sources covering more than half of the gap. This rate could reach a record level in the coming months. Turkish President Recep Tayyip Erdoğan spurred economic growth, largely in the construction industry, which Sonmez said failed to raise foreign exchange earnings for Turkey’s import-dependent economy.
2. Israel warns Russia of potential election interference
As Israel prepares for its fifth election in less than four years, Ben Caspit learned that the Shin Bet asked its Russian counterpart to avoid interfering in the vote. Given the nature of his request, Caspit writes that the Israeli spy agency likely has proof of alleged Russian interference plans.
The Israeli request to Russia comes at a particularly sensitive time in relations between the countries. In late July, the Russian Justice Ministry filed a request to close the Russian branch of the Jewish Agency, an organization that helps Jews who wish to emigrate to Israel. Anton Mardasov reports that Moscow is concerned about the emigration of IT specialists to Israel amid growing cyberattacks on the Russian financial sector.
3. Islamic Jihad says Israel is reneging on its truce
Islamic Jihad says Israel is violating the terms of a recent truce by refusing to release two Palestinian prisoners. A day after the ceasefire came into effect, Israel’s Defense Minister Benny Gantz told Channel 12 News that Israel had never committed to releasing prisoners as part of the deal. Islamic Jihad has since called on Egypt, which brokered the truce, to clarify the terms.
Meanwhile, the chances of a new outbreak of conflict are high, writes Amany Mahmoud. At a press conference from Tehran, the secretary general of Islamic Jihad Ziad al-Nakhala threatened that the movement would resume fighting if Israel did not respect the truce.
4. Palestinian activists claim social media crackdown
Palestinian activists say Israel is behind a social media crackdown on activists, journalists and news outlets whose social media accounts were restricted following the three-day operation days of Israel in the Gaza Strip. Taghred Ali reports that many now-deleted accounts had posted photos of Gaza victims and encouraged resistance against Israel. A Palestinian watchdog group said most of the breaches happened on Facebook.
5. Understanding Iraq’s coordination framework
Endless in view of the Iraqi political stalemate, Mustafa Saadoun takes a closer look at the coordination framework, the largest Shia bloc in the Iraqi parliament. Iran-backed cadre managed to keep populist Shia cleric Moqtada al-Sadr and its allies to obtain the two-thirds majority needed to choose a new Iraqi president and ultimately form a government. To understand how, check out the political makeup of parliament before and after Sadr ordered the mass resignation of his MPs in June.
Multimedia this week
Ben Caspit interviews with Maj. Keren Hajioffthe international spokesperson for the Israeli Prime Minister Yair Lapidabout the recent Israeli Tsahal operation in Gaza.
Renowned French architect Jean Nouvel speak with Gilles Kepel of his experience designing world-renowned buildings across the Middle East.
André Parasiliti interviews Marc Fitzpatrickresearch associate at the International Institute for Strategic Studies and former State Department official, on the prospects for a renewed nuclear deal with Iran.
A Picasso painting worth millions of dollars was reportedly seized during a drug raid in Iraq. But like Joe Snell reports, this is not the first Picasso to be foundin the hands of Iraqi organized criminal networks.