Dr. Majid Rafizadeh: The tactics behind Iran’s dual response to US withdrawal..التكتيكات الإيرانية المزدوجة رداً على الإنسحاب الأمريكي/Wael Mahdi/Who are the winners and losers from US oil sanctions on Iran?..من هم الخاسرين والرابحين من عقوبات أميركا البترولية على إيران
The tactics behind Iran’s dual response to US withdrawal التكتيكات الإيرانية المزدوجة رداً على الإنسحاب الأمريكي
Dr. Majid Rafizadeh/Arab News/May 11/18
Tehran’s politicians and the state-owned Persian news outlets have been heavily covering the US decision to pull out of the nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA), which was struck in 2015 between six world powers, known as the P5+1, and Iran.
The reactions and responses coming out of Iran are mixed. On the one hand, hard-liners are taking a tough stance by lashing out at the US and leading calls to “set fire to the nuclear deal.” When the Majlis, Iran’s Parliament, opened its session the day after President Donald Trump announced the US withdrawal from the deal, hard-line representatives burned a US flag and a copy of the agreement, while chanting “Death to America.”
These hard-liners are attempting to appease Supreme Leader Ayatollah Ali Khamenei and make a reality of his previously symbolic phrase, “Set it (the nuclear deal) on fire.” Before the election of Trump, Khamenei warned that “if the threat from the American presidential candidates to tear up the deal becomes operational then Tehran will set fire to the deal.”
In addition, the regime in Tehran is warning that the US withdrawal from the nuclear deal will bring significant harm to America. Such threats against the US will most likely escalate.
On the other hand, Iran’s so-called moderate political party and its media outlets are taking a totally different approach. The moderates are forcefully spreading the narrative that European nations are robustly standing with Iran and opposing the US. For example, the Arman newspaper’s front-page headline quoted Federica Mogherini, the EU high representative for foreign affairs and security policy, as stating that “we (Germany, France and the UK) will stay in the JCPOA.” The Hamdeli newspaper’s headline applauded the French ambassador for saying: “We will support the JCPOA.”
Similarly, Iranian President Hassan Rouhani reacted by repeatedly promoting and buttressing the argument that there is no issue with the nuclear deal, even though the US has withdrawn from it.
In the Iranian newspaper Etela’at, he said the nuclear agreement was between the P5+1 countries (the five permanent members of the UN Security Council — China, the US , Russia, France and the UK — plus Germany). All that has changed, he said, is that an intruder (the US) has left the accord. Now the agreement is between Iran and the other five nations, he added. Some state-controlled outlets, such as Hamshahri, supported his position, with headlines such as “the JCPOA stays, the US left.”
Any astute analyst who has studied the four decades of Iran’s ruling mullahs will know that such mixed reactions originating from the country should not be regarded as a surprise. It illustrates a tactical move utilized by the clerical establishment; such a dual approach is the modus operandi of the Iranian regime.
For instance, before the nuclear agreement was reached, the hard-liners — including Khamenei, high-ranking members of the powerful Revolutionary Guards and their hard-line social base — were taking a similarly strident stance by opposing the deal and criticizing the negotiations between Rouhani’s technocrat team and the West. Even a few hours before the UN unanimously voted to endorse the deal, Maj. Gen. Mohammed Ali Jafari, head of the Revolutionary Guards, rejected it, saying: “Some parts of the draft have clearly crossed the Iran’s red lines, especially in Tehran’s military capabilities. We will never accept it.”
This is a classic good cop, bad cop strategy. The moderates set the tone on the international stage through their shrewd diplomatic skills and softer tone, while the hard-liners take a tougher stance to assist the moderates in obtaining more concessions from the other side.
Although the Revolutionary Guards have been a major beneficiary of the nuclear deal, thanks to the lifting of crippling sanctions against Iran, Jafari added that the UN should not “waste its time” passing a resolution endorsing the agreement.
Hence, the big question now is why is the Iranian regime playing such a tactical game? The answer is that this is a classic good cop, bad cop strategy. The moderates set the tone on the international stage through their shrewd diplomatic skills and softer tone, while the hard-liners take a tougher stance to assist the moderates in obtaining more concessions from the other side.
In addition, it is critical to point out that when it comes to Iranian politics, the rhetoric of the leaders across the political spectrum matters less on certain occasions. The most important issue is the instructions that Khamenei gives behind closed doors to both the moderates and hard-liners. These instructions might totally differ from what Khamenei expresses in his public speeches and announcements.
For example, before the nuclear deal, Khamenei continually criticized the negotiations with the West and any potential agreement. But he desperately needed the nuclear deal. Without his blessing, Rouhani would not have been able to negotiate with the West and reach an agreement. In fact, were it not for Khamenei’s blessing, Rouhani would not have been approved by the Guardian Council to run for the presidency in the first place.
Khamenei is the final decision maker when it comes to Iran’s major foreign and domestic policies. Despite his public announcements and threats to set fire to the nuclear deal, the latest developments from within Iran suggest that even though the US has withdrawn, Khamenei, his gilded circle and the senior cadre of the Revolutionary Guards still desire to remain in the nuclear deal and keep it intact because of the benefits that it is bringing to the regime.
• Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. He is a leading expert on Iran and US foreign policy, a businessman and president of the International American Council.
Who are the winners and losers from US oil sanctions on Iran? من هم الخاسرين والرابحين من عقوبات أميركا البترولية على إيران
Wael Mahdi/Arab News/May 11/18
It seems clear that all producers will benefit from rising prices following the decision of US president Donald Trump this week to impose sanctions on Iranian oil exports within 180 days. Conversely, it would be reasonable to expect that consuming nations will suffer from high oil prices.
But in reality things could be different depending on the development of events. Not all oil producers will benefit in the same way and not all consumers will be affected in the same way. Similarly, not all international oil companies will benefit or lose in the same way.
So who are the real winners from the renewed sanctions on Iranian oil and who are the losers? And why are the sanctions this time different from the last round of sanctions that were imposed in the summer of 2012?
Starting with the second question, the dynamics in the market differ greatly from the previous situation. In 2012, demand was not very strong and there was no excess supply in the market to replace Iranian crude.
Iran mainly produces medium and heavy-density crude oil with a high sulfur content, otherwise known as sour crude. Not all producers can supply this type of crude, and most of the medium and heavy excess capacity is in the Gulf region, in countries such as Saudi Arabia and Iraq.
The growth in world oil demand in 2012 was about 800,000 barrels per day (bpd), largely unchanged on the previous year, as US oil demand moved from deep contraction to minor growth, according to OPEC estimates at the time.
The supply picture was different, with output from outside the group not growing greatly, despite oil prices trading at above $100 that year. Non-OPEC’s supply growth was projected at 500,000 bpd in 2012 with gains from US and Canada, according to the organization’s estimates. OPEC at that time had a production ceiling of 30 million bpd.
The supply and demand situation in 2012 was reflected in pricing dynamics. Due to the lack of enough medium and heavy spare capacity, the gap in prices between Dubai crude oil, which represents Gulf heavy sour grades, and Brent oil, which represents medium-sweet grades, narrowed to record lows in that year following the embargo on Iranian shipments. This was because the value of medium and heavy grades went up due to scarcity.
The price spread between Brent and WTI widened greatly, as the US was not exporting crude oil and most shipments to Asia came from Brent-linked crude grades or Brent itself. By the end of 2012, the Brent-WTI spread reached $24. Today, the dynamics of the market are totally different. Fundamentals are healthy and there is abundant crude in the market — mainly sweet and light oil. This time around, it is not hard to replace an Iranian shipment, even from within OPEC, as many countries — including Iraq, Saudi Arabia, Kuwait and the UAE — have invested in adding capacity.
According to OPEC’s latest monthly report, oil demand in 2018 might grow by 1.63 million bpd, twice the amount in 2012. Growth in supply from outside OPEC this year is around 1.71 million bpd, more than three times that in 2012.
US oil companies will benefit more than OPEC producers, while refiners in Asia and Europe will suffer
Meanwhile the Dubai-Brent spread, which now stands at $4 per barrel, is expected to narrow later in the year and early in 2019, as the value of Dubai might rise. As for the Brent-WTI spread, the former is trading now at a premium of $6 to WTI.
The only significant difference is that OPEC and some non-OPEC producers have an agreement to cut production as oil prices now trade at little more than half their levels in 2012. If the sanctions on Iranian crude result in the end of that agreement, there will be a flood of medium and heavy grades in the market and any sanctions on Iranian crude will not affect the balance of the market.
Saudi Arabia alone can increase production by another 500,000 to 1 million bpd in a short period. But this is unlikely, given the Kingdom’s close coordinations since last year with Russia and others to balance the market; therefore the responsibility for increasing supply is likely to be shared by a wide group of producers.
It is hard to tell whether the new sanctions will spell the end of the OPEC plus agreement. Oil prices are not yet at the level where producers in the agreement want them to be, as they are not yet high enough to bring back lost investments in the industry. So the deal might continue but with a new distribution of the quotas of producers. Another important difference with the situation in 2012 is that the US now has enough capacity to replace Iranian condensates to Asia due to the increased production of shale oil and gas from areas such as the Permian and Eagle Ford. Back in 2012, it was hard to replace Iranian condensates — a form of a very light oil. With all of this in mind, who will be the winners and losers from the new sanctions on Iran? US oil companies are in a better position to benefit more than OPEC countries, while refiners in Asia and Europe will suffer when they look for new sources of supply. This is for two reasons.
First, such refiners will need to get some oil that is priced based on Brent. Second, some refiners will lose the discounts and the long billing cycles that Iran usually offers to its customers to compete with other Gulf producers.
Another source of concern for refiners is the refining margin. The shift in use of other type of crudes that are not configured by the refineries will change the economics, and may shrink the profits made from refining each barrel. For the US refiners, there is not much to fear. But for EU and Asian refiners the margins will be a big concern next year. OPEC will no doubt think about these issues in its next ministerial meeting in June but there are many challenges. First, distributing Iranian market share is not going to be easy, and selling crude at reasonable discounts and pricing to Iran’s customers is a delicate marketing issue.
Second, whenever there is a void in the market, everyone will try to sell more crude. This may result in cheating by some members of the agreement.
What is almost certain is that OPEC and non-OPEC allies are interested in keeping the agreement because it results in higher oil prices. And as oil prices are expected to increase next year, although not greatly, producers will need to balance the market and make sure they do not jeopardize the balance of the market. But will the sanctions work this time? This really depends on the role that the EU plays. Last time it was not the embargo that hurt Iranian oil exports but the withdrawal of EU insurers from insuring Iranian tankers that made customers unwilling to buy Iranian oil.
• Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” Twitter @waelmahdi