Iranian resource economy set for collapse as US sanctions bite

Iran’s envoy to the oil producers’ group OPEC has drawn a hard line in the sand for countries seeking to take up the Islamic Republic’s share of the oil market in the wake of newly re-imposed US sanctions.

Kazem Gharibabadi met with OPEC Secretary-General, Mohammed Barkindo, to discuss Iran’s deepening oil crisis before telling reporters that “no country is allowed to take over the share of other members for production and exports of oil under any circumstance.”

“Iran believes that OPEC should strongly support its members at this stage and stop the plots of countries trying to politicise this organisation,” Gharibabadi said. This proclamation follows an announcement from the Iranian Vice President, Eshaq Jahangiri, who recently signalled that Iran will continue to export its oil despite US sanctions.

US sanctions on Iran were brought back by President Trump after the Iranian leadership failed to cooperate on new terms concerning the Joint Comprehensive Plan of Action (JCPOA, commonly known as the Iran Nuclear Deal). The Trump Administration demanded that Iran accept more robust oversight of its nuclear programme as well as concessions on its development of ballistic missile technology.

Attitudes in Washington DC towards Obama-era policy on Iran shifted when President Trump took office in 2016, but there has between widespread condemnation of the nuclear deal, both in the US and Europe, with many suggesting that crimes committed by the Iranian state, such as funding for Middle Eastern extremist groups and the supply of arms and finances to terrorist groups such as the Yemeni Houthis that undermine regional stability, have been overlooked for the sake of maintaining the agreement.

Despite a lack of support from the other original signatories to the JCPOA, including the governments of the UK, France and Germany, President Trump withdrew American support for the deal in May 2018, promising to reimpose pre-nuclear deal sanctions should Iran fail to acquiesce to his terms.

With these economic sanctions now taking effect Iran is facing potentially devastating issues on several fronts.

Domestically, the Iranian leadership is dealing with nationwide unrest as demonstrators protest a lack of economic stability and have called on the regime in Tehran to halt Iranian funding for regional proxies, such as Hezbollah in Lebanon and the Houthi militia in Yemen. Protestors have been met on the streets by state security forces, resulting in a number of deaths and countless arrests and the state struggles to maintain order.

The American sanctions are also bearing down hard on Iran’s relationship with the wider international community. The US regulations in place have a built-in mechanism designed to prevent other countries from doing business with the Islamic Republic. British firms, for example, that had opened up new business with Iran after the original JCPOA was agreed have been forced to cut ties with Tehran.

Nowhere in the Iranian economy is this effect more visible than in its natural resources sector. It was announced today by the Iranian oil minister that the French energy giant Total had entirely withdrawn itself from a multi-billion-dollar natural gas project in the South Pars gas field. Total’s leadership had said previously that it would have been impossible to remain active in Iran without a special exemption from Trump’s Administration, which was not granted.

Similarly, the announcements from Gharibabadi and Jahangiri were made in rapid response to rhetoric from oil producing rivals, such as Saudi Arabia, Iraq, Kuwait and the United Arab Emirates (UAE), who have claimed that they are ready to increase production and replace Iran in the marketplace. Figures from the International Energy Agency suggest that the replacement of Iran’s position in the global market is, contrary to statements from the Iranian Government, entirely feasible.

A second round of US sanctions, specifically targeting the Iranian oil economy, are expected to be enacted in November this year.

The leadership in Tehran have ordered an increased military presence in Iran’s coastal waters, signalling that conflict is certainly being considered by Iranian shot-callers. But as militaristic activity grows, as does civil unrest. It is as yet unclear whether there is a serious appetite for American cooperation growing within in Iran, but several regional experts and commentators have been mentioning two words more frequently of late: regime change.