Towards an increase in the price of oil?
The US approach is likely to have implications for the global energy market, with a likely price increase of oil due to the decrease in the supply of crude oil, against a growing demand. For this reason the Trump administration it seems willing to grant some exemptions at least in the short term ("waivers") to some countries, which will therefore be able to continue to import Iranian oil in gradually smaller quantities. The oil shock and the consequent increase in the price of oil therefore seem to be postponed, as well as the objective of "bringing Iranian oil exports to zero". Among the eight countries that would enjoy the waivers – but whose definitive list will be made official only on Monday – there would be Japan, India, South Korea, while China would still be in talks with the US Treasury. Guiding Trump's choice seems to have been the fear of causing a rise in oil prices just on the eve of the important event midterm election date. In the medium to long term, however, the goal of the US administration remains that of blocking the Iranian energy sector and depriving Tehran of the greatest budget revenue.
In the case of the previous embargo on the Iranian oil sector (2012-2015), the Obama administration had decided to impose a "significant" reduction in oil imports from Iran, not, as decided by the Trump administration, the “total” reduction. This had allowed Iran to continue exporting, albeit to a lesser extent than in the pre-sanctions period: Iranian crude oil exports had declined by around 40%, going from 2,5 million barrels per day in 2011 to 1,5 million barrels per day in 2012. A further element characterizing the embargo of the 2012-2015 period is that it took place in a period of recession or low growth for Europe, therefore marked by a drop in the European demand for oil. Finally, this embargo was characterized by a substantial continuity of Iranian oil exports to the main buyers, China and India. On the part of the Trump administration, however, there is a much more intransigent attitude, which suggests that the US will use all the means at its disposal to achieve this goal. Therefore, unlike with Obama, sanctions no longer seem to represent an instrument capable of achieving a precise political objective – Tehran has already sat down at the negotiating table, the agreement has already been concluded – but if anything, the main component of a strategy aimed at punishing and isolating Tehran. The embargo, like the other sanctions, thus runs the risk of being open-ended, precisely because it is not linked to a precise and measurable political objective.
Based on these elements, it is possible to estimate a more significant decrease in Iranian oil exports than in the period 2012-2015. Recent estimates speak of a contraction of almost 2 million barrels per day, far greater than the decrease of 1,2 million barrels per day caused by the sanctions in 2012-2015.
Above all, it is a decrease that risks being more perceived also by the international market, because it occurs in a period of generalized economic growth and no longer with a recession and a period of low growth in Europe, therefore with a demand for crude oil higher than that of 2012-2015. Although the main producing countries, OPEC and non-OPEC (Saudi Arabia, the UAE, but also Russia) have signaled their intention to fill the market shares left uncovered by Iran's exit, and in some cases have already signed contracts for the coming months, the real capacity of these countries to increase production to satisfy the entire global demand, and the sustainability of this option over time, remain in doubt. In this context, a an increase in the price of oil in the coming months appears to be an increasingly probable hypothesis.
Europe tries to defend itself
The new US strategy of pressure on Tehran, which has its main tool in sanctions, has drawn condemnation from the European Union, as well as from some of the main member states. Since last May, the EU has been engaged in the search for solutions that allow its companies to maintain economic and commercial relations with Tehran without incurring US punitive measures.
In August, the update of the Blocking regulation (Regulation 2271/96), which prevents European subjects from complying with US secondary sanctions, and the extension of the mandate of the European Investment Bank (EIB), which has been granted the power to provide guarantees on financial activities with Iran, in order to support European investments - especially of small and medium-sized enterprises - in the country. As it highlights in this commentary, however, in both cases they are instruments of high political value but of little practical use: they risk being blunt weapons in the face of US intransigence in not wanting to grant the allies any room for action to continue doing business with Iran.
Last September, on the sidelines of the United Nations General Assembly, the EU High Representative for Foreign Affairs and Security Policy Federica Mogherini announced the creation of a "Special Purpose Vehicle" (SPV), i.e. a legal mechanism capable of supporting and processing payments to and from Iran, without exposing European companies to the risk of US repercussions. The SPV should make it possible to process payments for both Iranian imports and exports, including oil. The functioning mechanism would be that of the exchange: for example, the sending of Iranian oil to French companies, which would allow Tehran to accumulate credit which can then be used to pay other European companies for goods imported into Iran. In this way, there would be no physical transit of money either in the SWIFT financial system (which from November will be exposed to the risk of US repercussions) or in Iranian banks affected by sanctions. To complete the implementation of the instrument, further steps of a technical nature are necessary, which the Union hopes to complete by the end of the year, in order to make it fully operational soon. Using that tool should be also extended to Russia and China.
Beyond the doubts about the exact functioning – which can only be dispelled once it becomes operational – there are doubts about the fact that the SPV can actually be sheltered from the long arm of the US Treasury. For this reason, it it appears intended to be used only by small and medium-sized businesses that have no exposure to the US market. It therefore represents a tool potentially able to circumvent the node of payments to and from Tehran, but not sufficient to protect large companies with exposure to the US market. Consequently, the scenario that appears most probable at the moment is that of a continuation of the activities of small-medium enterprises, but of a stop of the big companies, i.e. those players that could have given new life to the exhausted Iranian economy.
The consequences for Iran
Undoubtedly the new US strategy it will have consequences. But it is not equally certain, however, that they will be the ones desired by the Trump administration. Behind at twelve requests that the State Department has addressed to Tehran - and which according to Trump should lead to a "change in Iranian behavior" - seems to be in reality the goal of achieving regime change. The Trump administration seems to be betting on pressure from below on the regime, which will increase as the negative consequences on the Iranian economy of the reintroduction of sanctions intensify.
The economic situation is already deteriorating sharply, and for the next two years, estimates predict a recession, accompanied by an increase in inflation and a further devaluation of the value of the rial. In this sense, there are many doubts about whether the sanctions hit their real target, i.e. the Revolutionary Guards (IRGC) and the economic entities linked to them. In 2017, the total budget for defense and security was 16 billion dollars, of which about 8 billion for the IRGC, which can also count on the revenues deriving from economic activities in various sectors of the Iranian economy. These are not very high numbers, and it should be remembered that even in the previous period of international sanctions, the IRGC was able to sustain its activities on the various war scenarios in the region: from supporting Assad in Syria to financing militias in Iraq, from support to the Houthis in Yemen (whose real extent is not known, however) to that of Hezbollah in Lebanon. As Colin H. Kahl writes in Foreign Affairs, the Trump administration seems to ignore the fact that the success of Iranian operations abroad in recent years is due more to the opportunities that have opened up following the spread of regional chaos and instability than to huge financial resources. Not to mention the fact that the reintroduction of sanctions will lead – as in the previous period – to the development of forms of illegal economy, fueling that black market from which the IRGC itself benefits.
Rather, it will be the population above all who will suffer the consequences of the sanctions. In addition to the obvious penalizing effects of the imminent increase in the cost of living, some difficulties have already been reported in recent months in keeping the channels open for trade in humanitarian goods. While there are exemptions for medical goods and other categories of humanitarian trade, there is a reluctance on the part of European banks to finance such transactions, especially after the Treasury Department USA announced new sanctions against 20 companies and financial institutions including the Parsian Bank, through which most of the exchanges with the EU, including those in the humanitarian field, passed so far.
The net worsening of the economic situation that is preparing in the coming months, combined with the meaninglessness of the nuclear deal which could lead to its collapse, will produce effects also on the Rouhani administration. Already severely weakened, the president is unlikely to have the political capital in his remaining three years in office to implement the cautious opening and reform agenda for which he was elected. In the next presidential elections, in 2021, to be elected could therefore be a member of the ultra-radical faction, which has already been blaming the Rouhani administration for the worsening economic situation in recent months, thus trying to exploit US shares in its favor. At the same time, however, there is a sharpening of rhetoric, with an invitation to strengthen the security forces and one's own regional projection: translated, greater support for the IRGC's activities abroad.
The consequences of the new US policy of maximum pressure on Iran, therefore, risk being the deterioration of living conditions of the population – against which, however, Trump continues to ostentatiously express one's feelings of closeness -, themarginalization of the political faction of the “moderates” attributable to President Rouhani and the resurgence of the ultra-radicals, and the strengthening of the security apparatus, with theintensification of military operations abroad.
Da Ispionline.it.
