Tag: Iran Oil Policy

Iran: Trump Is All Gambit, No Plan

The Daily Escape:

The Mitten Buttes, Monument Valley, UT – photo by Nathan Fitzgerald

Here we go, a new gambit on Iran. The Trump administration moved on Monday to isolate Tehran economically and undercut its power across the Middle East by not extending the waivers of sanctions against countries purchasing Iranian oil.

Secretary of State Pompeo announced that the waivers which allowed eight countries to import Iranian crude oil without being subject to US sanctions will expire on May 2nd. The eight countries included are China, India, Turkey, South Korea, Japan, Greece, Italy and Taiwan. From the NYT:

“Secretary of State Mike Pompeo said in announcing that current sanctions waivers…would expire on May 2, clearing the way for American economic penalties against all companies or financial institutions that continue to take part in transactions linked to buying Iranian oil.”

This decision to stop Iran’s biggest customers (China, who buys half of Iran’s oil exports) along with Japan, South Korea, India and Turkey, is a strike at Tehran’s lifeline. They export one million barrels of oil daily, and it accounts for 40% of their GDP.

Immediately, there were repercussions. Bloomberg reported that Iran threatened to close the Straits of Hormuz, a choke point in the Persian Gulf, while the Washington Examiner reported that the US has positioned a second aircraft carrier in the region.

What Trump seems intent upon is regime change. He campaigned against further wars in the Middle East, but now is catering to Saudi Arabia and Israel, both of whom, along with National Security Advisor John Bolton, are intent upon toppling the Iranian regime.

Trump’s Iran obsession makes us look terrible. Taking pages from the Iraq War playbook, Trump and Pompeo paint a picture of a rogue, outlaw, terrorist regime bent on acquiring nuclear weapons and whose “malign activities” are the cause of all the chaos in the Middle East.

This is straight from the neocon playbook: The one they’ve used before. They are building a case for war. America wants Iran out of Syria. We condemn their support for Hezbollah. We say that Iran supports the Houthis in Yemen, against our great friends, the Saudis.

This latest move is called the doctrine of “Maximum Pressure”. The goal is to cut Iran’s oil exports to zero. Will this gambit force the capitulation, or collapse, of the regime? That seems difficult to believe, but Trump and Bolton may have teed up a war.

Think about this: America is now decreeing to the rest of the world that only we decide which countries get to trade with whom. We’re telling China, the second largest economy in the world, that it lacks the sovereign authority to buy oil from Iran if it so desires.

Which do you think China will do? Both Iran and China appear to hold a better hand than the US. We can’t invade Iran and win. We can’t force China to do anything they refuse to do.

The rest of the world will have trouble understanding what Trump thinks the US can gain from this gambit, because there is no plan behind it. If Iran closes the Straits of Hormuz, will we bomb, bomb, bomb, bomb, bomb Iran?

If China, Turkey, India and Japan continue to purchase Iranian oil, will we freeze their dollar-denominated assets in the US? If this leads to the creation of a non-dollar global payments system, what happens to the dollar as the global reserve currency? Has anyone in the Trump administration thought about that?

Once, the US used its reserve currency status and clout (largely) for good. Now, it’s just more bullying by Trump. In the end, the Trump administration may achieve a new level of worldwide cooperation against a common enemy: the USA.

Aren’t Americans sick of this neocon warmongering? Americans don’t want to be drawn into yet another ME action. It isn’t an accident that Trump’s National Security Advisor John Bolton, declared unequivocally in November 2002:

“We are confident that Saddam Hussein has hidden weapons of mass destruction and production facilities in Iraq…”

Is now the chief strategist behind Trump’s drive towards war, with Secretary of State Pompeo, happily riding shotgun.

It doesn’t matter that US intelligence, along with Israeli intelligence and the International Atomic Energy Agency confirm that Iran is complying with the Iran Nuclear Agreement. Or, that the US invasion of Iraq is the principle cause of Middle East chaos today.

Trump officials will cherry-pick information, package it, and amplify it, exactly as the Bush administration did in the lead-up to the Iraq war.

The real question is whether American voters will fall for this again.

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New OPEC Deal Puts Saudi Arabia On The Sidelines

The new OPEC deal to cut oil output, the Cartel’s first since 2008, gives OPEC what it wanted: higher oil prices. It was difficult for the Cartel to achieve an agreement. Russia, a major oil producer that isn’t even a member of OPEC, brokered a deal between Saudi Arabia and Iran. From Oil Price:

The interventions ahead of Wednesday’s OPEC meeting came…from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran’s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani…According to Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal, and is a “testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago.”

Prior OPEC meetings failed to deliver consensus, because nobody wanted to cut production. Tehran argued OPEC should not prevent it from restoring the output lost by years of Western sanctions, but the Saudis wouldn’t agree. The animosity between them didn’t help: Proxy wars in Syria and Yemen have exacerbated decades of tension between the Saudi Sunni kingdom and the Iranian Shi’ite Islamic republic.

The brokering started when Putin met Saudi’s Prince Mohammed on the sidelines of the G20 meeting in China. Both felt they could benefit from cooperating to push oil prices higher, and agreed to work together to cut excess production that had more than halved oil prices since 2014. Lower prices had created large budget deficits for both Russia and Saudi Arabia.

Financial pain made cooperation possible, despite the huge political differences between Russia and Saudi Arabia over the civil war in Syria. But Iran also had to agree. Prince Mohammed had repeatedly demanded that Iran participate in any production cuts. Saudi and Iranian OPEC negotiators had debated the point without compromise for months.

Putin stepped in: He established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen as making concessions to Iran. A deal was possible if Iran didn’t celebrate a victory over the Saudis.

Reuters reports that a phone call between Putin and Iranian President Rouhani smoothed the way. After the call, Rouhani and oil minister Bijan Zanganeh went to Iran’s supreme leader for approval. During the meeting, leader Khamenei approved the deal. He also agreed that Iran wouldn’t take a victory lap once the deal was announced.

And so the deal got done. OPEC is trimming output by 1.2m barrels per day (bpd) starting January 1st.

The deal is contingent on securing the agreement of non-OPEC producers to lower production by 600,000m barrels per day. Russia says it will contribute half of that, 300,000 bpd. Iran was allowed to slightly boost its output, while Iraq slightly lowered theirs.

We’ll see if the deal holds, and/or, who cheats.

Pundits like to chalk up winners and losers in this type of deal. Since OPEC now accounts for less than half of all energy output in the world, it is a weakened cartel, dependent on the kindness of outsiders (like Russia) to hold together.

Saudi Arabia looks like the biggest loser. First, it cut production by 500,000 bpd. Second, it has presided over a momentous shift in global power, one that is as stunning as Brexit or Trump’s victory.

Saudi’s capitulation to Russia and Iran ends OPEC’s domination of the world’s energy market. The Saudis also made the US shale oil market more powerful in the global energy market, since US shale will produce more oil whenever oil prices are high. However, Saudi oil remains far cheaper to produce than American shale oil, since it requires far less energy to extract and refine.

Russia emerged as the biggest winner. Its economy did not buckle under the Saudi effort to drive oil prices down via increased production. Putin is now the indispensable power broker in the Middle East, something that was unthinkable even 12 months ago. The Syrian civil war will soon end with Russia winning, Assad staying in power, and Saudi Arabia as the regional loser.

And so, this year truly has seen the death of one world order, along with the birth of another. The US and Saudi now have very little to show for their 50+ year joint effort to dominate the Middle East. The EU looks far from stable as a force in Western Europe.

And Saudi Arabia has just become the third dinosaur to be felled by the asteroid called 2016.

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