A Secret Deal
According to a recent report, Iran's oil output, which has been steadily increasing this year, is poised to reach 3.4 million barrels a day by the end of the summer. Essentially, Iran will be producing at peak capacity. In view of US sanctions, that's odd, and suspicious. But it mirrors a harsh dilemma facing the US.
Lately OPEC states, led by Saudi Arabia, have cut production to maximize prices. This move alarmed the US, as it raised the specter of worse inflation. Knowing higher prices at the pump would spark a general round of price hikes, Biden was desperate to prevent this. For him, the economic and political consequences could be ruinous. More inflation would mean higher interest rates and that would lead to recession. A major economic downturn by 2024 could not be more poorly timed...Inevitably, Biden would lose support, enabling Trump to reenter the White House. To avert this disaster, Biden needed more oil on the market, a bigger supply to hold down prices. Where could he get it? OPEC states wouldn't break ranks and the Strategic Petroleum Reserve has already been depleted too much. There was only one source of real help. Ironically it is the very state the US has strongly opposed for decades.
Suddenly, Iran found itself in a strong position. For years the US severely curtailed its oil output. Now Washington did an about face... Considering the degree to which Iran has been "quietly flooding the markets with oil" in recent months, despite official sanctions, there must have been a secret deal. Biden realized he had to get Iranian oil flowing again even if Tehran made no concessions. He needed Iranian oil sales as much as Tehran did. Sanctions were de facto lifted. Iran won the waiting game. Why negotiate for a revival of the JCPOA, or curtail its nuclear program, if it has regained the economic fruit already? Iran again has substantial revenues to use in ways the US dislikes, like building its military and backing Assad. This is a humiliation for the US, but there was no alternative. It was either give in to Tehran or see the mercurial Trump back in power. America's economic vulnerability put Iran in the driver's seat.
Of course for political reasons the deal has to be secret. Biden can't be seen as "appeasing Iran." Hence, both sides maintain the facade of hostility with rhetoric and occasional action.
posted by starman at 2:39 AM
11 Comments:
You make some excellent points Tim
Thank you.
August 25, 2023
Sure enough, just this morning a report all but confirmed what was written in this post. Biden "looked the other way" because heightened Iranian output is in his best interest as well as Iran's.
But the post exaggerated when it said sanctions are de facto lifted. First, Iran can only export to China. South Korea, Europe etc are off limits. Second, lack of access to the banking system makes it difficult for Iran to get paid. Third, Tehran remains shut out of normal shipping which forces it to use a problematic "ghost fleet." Lastly, even China may stop importing when its oil stocks are full. A weakened Chinese economy also limits demand. In a year or two, Iran might be back to square one, with no one it can export to….
That said, the Iranian regime may have gotten a new lease on life. With more revenues, it'll be in a better position to pursue domestic and foreign policy goals.
August 25, 2023
What you said again make sense . It's sad in a way if the current regime in Tehran is strengthened. Especially seeing what it did to its women and girls less than a couple of years ago. I don't know the details of the JCPOA agreement but longer term is it ever going to stop Iran from acquiring its own nukes. I wonder. But the world got to keep trying and hopefully allow IAEA inspection and auditing
Iran's human rights record is horrible. One of the bad points about it getting more money is the fact that the Iranian government is putting so much of its money into military buildup. If Iran were to acquire nuclear weapons, there would be potential for an extreme disaster in the Middle East.
Thanks for the comments guys. I agree with both of you about Iran's gratuitous treatment of women. The ladies should have more rights and freedoms.
But regarding nuclear weapons, the potential for disaster is already there and has been for a long time. For many years Israel has been a nuclear power. It's only natural that arab states and Iran would want a nuclear capability of their own, as a deterrent. To maintain its regional nuclear monopoly, Israel destroyed arab facilities in Iraq and Syria. In contrast, the US never struck Chinese and Russian facilities but relied on deterrence, which worked. I think the threat of an Iranian n-bomb is exaggerated. It's a reflection of Israeli paranoia and media bias instead of objective analysis (although scholars have expressed views similar to mine). No doubt, it would be suicidal for Iran to initiate a nuclear war with Israel (which already has perhaps 100 nuclear bombs). Like China (even china under Mao) and Russia, Iran can be deterred (look at the restraint they've shown after hundreds of Israeli attacks in syria, killing of their nuclear scientists, and sabotage). A former Mossad official said Iran's leaders are "very rational." It's silly to think an Iran n-bomb would automatically lead to an attack.
August 25, 2023
It turns out the deal is not secret. A report freely admits the US granted sanctions relief, enabling Iran to ramp up production for export to China. The reason is the same given here, keep inflation under control. There's another reason however: Reduce Russian revenues by offering China competing Iranian oil.
August 26, 2023
I understand the end game to deny the Russian of much needed revenue. But China has already been circumventing the US Iran sanctions for many years isn't it. But maybe their pipeline over land to China is not ready and the Iranian oil still face US blockade coming through straits of Hormuz. Yeah many shipments of Iranian oil were stopped by the US despite disguise in foreign ship banner
What I mean is China oil imports from Iran do not need the US blessings or sanction lifted right?
I recall imports to China had been initially permitted in 2018 (after Trump pulled out of JCPOA). But this ended after maybe 6 months, until this recent development. Iran has been dodging sanctions and exporting oil via ship to ship transfers, but not always successfully. Now it appears imports to China are relatively unhindered.
An important question arises at this juncture: How long will Iran be permitted to export oil at a (near-)maximum level, or at any significant level? Will the US "look the other way" just in 2023 or will this go on in 2024 and 2025?
Much depends on what the Saudis, Russians and other oil producers do. If they keep production low, Iranian oil will probably be needed. But if they increase production (despite falling prices) to regain market share, then Iran loses its strong position and becomes vulnerable to reimposed sanctions.
August 26, 2023
This would be beneficial to Iran. It is obvious that Iran does not want to get into a war with the U.S.
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