No nuclear deal next year

To some degree, the extension of the nuclear negotiations with Iran is reassuring to the markets. For now at least. Should the parties have left Vienna on bad terms, fears might have flared that the US and/or Israel would attack Iran. Instead, we can probably look forward to seven months of relative peace and quiet – although nothing is guaranteed in international politics. At the end of that period, the parties involved (which are officially referred to as the P5+1 – the US, China, Russia, the UK, France, and Germany plus Teheran) will need to have come to an agreement on issues such as the number of centrifuges that Iran will be allowed to operate, the enrichment level of the nuclear material, international inspections, and what will happen to the sanctions.

The West does not want Iran to have rapid access to a nuclear weapon (whereby it would be powerless to intervene) whereas Iran says it only wants a peaceful atomic energy programme and the lifting of the economic sanctions.

{mosads}I very much doubt if it will be possible to wrap up the talks – which have been going on, intermittently, for 12 years – in a satisfying manner. Even if agreement is reached before the next deadline expires (in July), this will again be a provisional affair. For a number of reasons.

First of all, let’s take a look at the Iranian side of things. President Rouhani and his Foreign Minister Zarif may be moderate politicians, educated in the West, with progressive leanings (by Iranian standards) but there is only one real decision maker. Namely, Iran’s Supreme Leader, Ali Khamenei. It will be very hard to convince him to strike a deal that entails significant concessions by Iran.

The Iranian leadership will have noticed that several regimes which abandoned the idea of nuclear weapons were toppled soon afterwards in a violent manner (notably, Iraq and Libya). On the other hand, the North Korean dictatorship – with its fistful of nuclear bombs – seems firmly in charge.

What’s more, western sanctions are hurting Iran but the country has found ways and means to alleviate the pain. It has – partially – shifted its focus to China and Russia and in Q2 of 2014 the Iranian economy showed growth for the first time in two and a half years (it expanded by 2.5 percent).

Not only in Iran can we spot plenty of obstacles to a nuclear deal, but also in the West we can discern lots of obstacles.  Western politicians who conduct the negotiations have to take into account political cycles that are relatively brief. In the case of the U.S., they consist of four or eight years. Conversely, the Iranian leadership has all the time in the world to develop roadmaps and visions: Khamenei has led Iran since 1989….

Talking about political cycles, in January Republicans will take control of the U.S. Senate. Mostly, the GOP favors a harder stance vis-à-vis Teheran than the Democrats, while some Democrats also think the White House should come down harder on Iran.

In addition, the White House has not always met with unqualified success when it comes to enacting foreign policy. And Obama’s power will continue to wane as the moment approaches that he will depart from the Oval Office for good.

Lately, the U.S. has been more inclined to leave the door ajar for U.S.-Iranian rapprochement because Teheran may play a pivotal part in the restive Mid East. For instance, Iran could be a strong partner in the fight against IS. By the same token, support in the U.S. for a nuclear deal (i.e. better relations with Teheran) could evaporate if its military makes notable progress in the campaign against the terrorist movement or if it is increasingly obvious that Iran is unwilling or unable to participate in the struggle.

There are other parties besides Iran and the U.S. that could act as spoilers. Israel and Saudi Arabia could (surreptitiously) scupper a potential deal. For geopolitical reasons, they are dead set against international recognition for Iran.

Finally, pride, honor, and associated emotions play a prominent part for all parties concerned whereas rational economic considerations are sometimes put on the back burner. This could lead to reckless behavior. 

Even if a breakthrough in the negotiations should occur in the next few months, Iran may not be able to flood the market with as much oil as many think. Presently, it produces 2.8 million barrels per day. Teheran claims that once the sanctions are removed, it can rapidly increase production to 4 million. The International Energy Agency is far more pessimistic. It estimates that an extra 500,000 to 800,000 barrels is more realistic. Many market analysts think the number will be even lower.

Add to this various legal and logistic obstacles. Opening the oil taps is not merely a matter of “flicking an export switch.” Transport, funding, and insurance need to be in place to get the Iranian oil boat up to speed. There is little doubt that insurers, transporters, and banks will be very cautious at first.

Both from a geopolitical view as from an economic perspective, Iran is unlikely to place considerable extra downward pressure on oil prices in the near future, because chances of reaching a nuclear deal within the next quarters are slim. 

Langenkamp is senior political analyst at ECR Research and ICC


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