Economic Impact of Iran Sanctions, or “PersiaStroika”

“Our countries (United States and Iran) can reach a detente — or ‘Persia-Stroika’ if you will” ~ Jon, Stewart of The Daily Show  [Note: “Perestroika”, or “openness”, was a term coined by Soviet leader, Mikhail Gorbachev in 1986, to describe the warming of relations between the U.S. and the Soviets]

“Insofar as eased sanctions permit, billions of dollars will be needed to reverse production declines and re-establish production growth. How realistic are Iran’s aspirations to attract such investment, and what increased production and exports can be reasonably expected over the near to medium term?

In turn, what will be the impact of increased Iranian exports on its neighbors, notably Iraq and Saudi Arabia, and their desire to secure a larger share of the global market? How will the Saudis and other Gulf monarchies react to Iranian moves? What are the implications of changes in Saudi national and energy leadership and of Kurdish moves to produce and export separately from Baghdad? What is the effect of these regional changes on the global energy balance?”

-Woodrow Wilson Center

PITAPOLICY’s response to the Woodrow Wilson Center’s discussion of Iran’s nuclear deal and economic impact immediately follows.   Another version appeared on Huffington Post “Peaceful Civilian Nuclear Energy Means Monitoring & Money-Making” by Mehrunisa Qayyum.

The keypoints made by the Woodrow Wilson Center’s invited panelists are included at the bottom of this post. 

Iran believes that the nuclear framework agreement will bring about foreign investment in its oil and gas sector.  Iran is not alone in its optimism because the nuclear framework agreement spells out ending economic sanctions.  Ending economic sanctions means that even skeptical countries can profit legally.  UAE trade with Iran spells out 13 billion reasons for the UAE to reconsider its nuclear neighborhood.  (Unlike Israel, Iran is now party to the Treaty on Nonproliferation of Nuclear Weapons, or NPT.) Earlier this week, an IMF paper projected that the UAE may benefit in a 1 percent real GDP growth yearly, until 2018.

With or without a handshake between the U.S. and Iran, there is a “strategic advantage”, satirized The Daily Show in this clip entitled “Iran Man 2”. (Yes, the phrase “PersiaStroika” was used… and it’s not a joke.)  <div style=”background-color:#000000;width:520px;”><div style=”padding:4px;”><iframe src=”http://media.mtvnservices.com/embed/mgid:arc:video:thedailyshow.com:e50565f8-357d-4cc9-84ba-b71991cbe707″ width=”512″ height=”288″ frameborder=”0″></iframe><p style=”text-align:left;background-color:#FFFFFF;padding:4px;margin-top:4px;margin-bottom:0px;font-family:Arial, Helvetica, sans-serif;font-size:12px;”><b><a href=”http://thedailyshow.cc.com/”>The Daily Show</a></b><br /><a href=”http://thedailyshow.cc.com/full-episodes/”>Daily Show Full Episodes</a>, <a href=”http://thedailyshow.cc.com/videos”>More Daily Show Videos</a>, <a href=”http://www.cc.com/full-episodes”>Comedy Central Full Episodes</a></p></div></div>

All physical activity will be monitored, stressed President Obama in his remarks following the Iran deal.  Why is Obama so confident about the monitoring clause?  The U.S. is resorting to the classic neighborhood watch approach via proxy: supporting a peaceful nuclear program in an Arab Gulf nation (the United Arab Emirates).  Since 2009, the UAE has received the U.S. greenlight to “own an ambitious nuclear power program with significant capacity being on line by 2020.”

In 2009, the U.S. established the 123 Agreement for Peaceful Civilian Nuclear Energy Cooperation agreement with the UAE.  Essentially, the “123 Agreement” allows the UAE to obtain US technical expertise, materials and equipment to pursue peaceful civilian nuclear energy use.  In exchange, the UAE agrees to forgo enriching uranium at home and reprocessing.  The UAE’s pursuit of alternative energy, under the watchful eye of the U.S. and International Atomic Energy Agency, may plug in its other Gulf Cooperation Council (GCC) members into the electricity grid.  With the “123 Agreement”, the U.S. has the physical capability for increasing its close range monitoring of Iran.

On that note GCC member, Saudi Arabia, is not too far behind with its own set of nuclear power plant plans: aiming for 16 sites by 2035.  Before Iran’s more hardline president, Ahmedinejad, there were constructive relations between Saudi Arabia and Iran.  Given this, it is possible to return to a more constructive relationship as the Islamic State threat becomes a shared common top interest.  “Interests trump ideologies,” asserted Jean-Francois Seznec, Non-Resident Senior Fellow, Atlantic Council at a Wilson Center Energy Series panel.

Plus, there is an opportunity for American and other foreign contractors to facilitate the billion dollar operation.  Specifically, the UAE accepted a $20 billion bid from a South Korean consortium to build four commercial nuclear power reactors at Barakah.

Despite the political discomfort many Arab countries may have with Iran’s nuclear framework, there is an element of economic discomfort among oil-rich, Arab countries because they will compete with the fourth largest oil reserve in the world.  Aside from market competition, not all oil-rich, Arab countries will suffer economically.  In fact, some welcome what the nuclear agreement means from a business standpoint: the easing of economic sanctions and opportunities for increased trade. UAE economists anticipate about $27 billion USD to be earned in trade between the Iran and the UAE–Iran’s biggest non-oil trading partner.

 

Panelists’ Key Talking Points

David L. Goldwyn, President, Goldwyn Global Strategies LLC

  • Three problems: symmetrical federalism of Iraq where you have three emirates
  • politics are unraveling the KRG-Baghdad deal: Baghdad hasn’t paid Kurdish region what it’s owed
  • Iran talks aggravate future of Iraq oil production
  • Rapprochement must be on security before economic issues. e.g. Yemen, Iraq & Hezbollah.

David Gordon, Senior Advisor, Eurasia Group Skeptical on Iran-GCC energy negotiations

  • Islamic State more assertive behavior than Russia “strategic surprise”: decline of post-Ottoman states.
  • traditional alliances are hedging: e.g. Saudi Arabia and Russia
  • Look at Libya because they put downward pressure on price in 2014
  • The two biggest issues looming are inspector access and the 11:59 Iran demand of lifting UN embargo.  The U.S. will never acquiesce on 11:59.

Julia Nanay, Principal, Energy Ventures LLC

  • Iran’s potential w/neighbor of Oman only on gas pipeline agreement–if they can get over their quibble on price. Iran is the 4th largest oil reserve. Even if no deal, South Fars field is far along enough. different story for oil.
  • Iran would like to return to 4 to 5 mb/d and be the second largest exporter
  • LNG markets have changed; don’t see price coming down.

Jean-Francois Seznec, Non-Resident Senior Fellow, Atlantic Council

  • Depending on International Oil Companies, but ultimately will focus on natural gas.
  • Saudis have another vision, through civil service lens, not family lens as they have built 3.3 mb/d capacity for energy products;Civil service in Saudi Arabia has tried to express that they should not rely on the production of crude oil and emphasize more downstream production and let Iraq follow “Third World” country path: produce raw materials.
  • Optimistic: Not too worried about Iranians coming back to market; will ultimately be okay on energy negotiations with Iran.
  • Before Ahmedinejad, there were constructive relations between Saudi and Iran.  Possible to return to this once IS threat becomes shared common top interest.  Interests trump ideologies.

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