Negotiations to revive the Iran nuclear deal are still ongoing, but face an even more uncertain fate, with many reports suggesting that Russia’s new position is hampering efforts by Iran and the West to reach an agreement. The outbreak of the Ukrainian crisis and the resulting imposition of harsh Western sanctions on Russia have brought about a new reality on the ground.
The US and Western countries are interested in lifting international sanctions against Iran in order to calm the market and lower the price of a barrel of oil, which has reached an all-time high and is expected to rise further if the current international situation continues.
In contrast, Russia, which has a vested interest in further increases in oil prices, wants to squeeze money out of the pockets of Western consumers and put their governments in dire straits. This is the first time Iran and Russia have faced off, and the interests of the two allies have clashed in previously nimaginable ways over the past few months.
Fundamental questions arise about the consequences of this confrontation. Are relations between Tehran and Moscow strained or will this situation be resolved in some way? In fact, the Kremlin is also going through a difficult period of political tension.
We do not believe there is much room for tolerance or forgiveness for positions that would harm Russia, and betting everything on the Ukraine situation. The crisis has staked Russia’s future not only as a unipolar world power. It will also affect the stability of the country and even whether it will return to the pre-war phase.
Given the quantitative difference in production and export capacity between Russia and Iran, there is no doubt that Russia’s supply shortfall cannot be compensated for by Iran’s oil exports. Iran's volume of exports is limited, currently not exceeding 600,000 barrels per day, though it could gradually increase once sanctions against Iranian oil purchases are lifted, to get to 3.5 million barrels per day as was the case before the Trump administration withdrew from the nuclear agreement.
Another dilemma would be the overestimation of the market’s rebalancing capacity from Iranian oil exports without Russian oil supplies. The bottom line is that the bet on Iranian oil is based on the assumption that it does not exist in the market. This hypothesis is also unlikely to be correct because it assumes no smuggling operations exist and that these exports will quickly return to the market.
However, this does not preclude the possibility of a relative calm in the market. Thus, the problem is not Iran. Instead, the main issue is Russia’s position in the international energy market.
Russia is the world’s second largest oil producer, with about 14 percent of its exports going to Europe. This corresponds to about one-third of the oil demand of European countries. According to experts, it is difficult for the world’s first and third largest oil producers (Saudi Arabia and the UAE) to quickly displace Russia in the European market (because oil producers have contacts with importers).
So, Iran cannot compensate for Russian oil in any way, at least in the short term. Increased oil supply will only lower prices to the extent that is consistent with the conventional variables that control the price curve. But the West and Tehran have a genuine interest in bringing Iranian oil exports back to the market.
Iran also has an interest in continuing trade relations with Russia if sanctions are lifted, and conversely, it wants to continue them because it fears new Western sanctions. If this continues, the conclusion of a strategic partnership agreement led by Iran and Russia could run into an impasse.
On the other hand, it would be difficult for Iran to lose its close ties with Russia, given its intertwined interests in Syria, Afghanistan, and the South Caucasus. Moreover, no matter how great the temptation, Tehran will find it difficult to dispel the suspicions hovering over its building relations with the West.
Russia’s demand for written assurances from the US that the sanctions imposed on Russia over the war in Ukraine would not impede trade, investment, and military-technical cooperation with Iran disrupted the final stages of the marathon negotiations in Vienna. Tehran’s refusal to accept “foreign dictates” and its official demand for Moscow to “explain” this issue will not bring Iran into conflict with Russia so easily.
Iran has so far been careful not to mention Moscow in public in connection with what it calls the “breakdown” of negotiations, but rather to blame the US. Only a senior Iranian official’s description of Russia’s move as “not constructive” has been leaked. In short, the inclusion of Russian demands in this line of negotiations in Vienna may anger Iran.
Agreement to revive the nuclear agreement may be delayed. However, Tehran will not jeopardize its alliance with Moscow, as some Western countries seem to think and this is not just because Supreme Leader Khamenei is convinced of the continuation of the Eastern Strategy (China-Russia). All the above factors play a role.
The Ukraine crisis has also yet to show most of its strategic implications.
Dr. Salem AlKetbi is a UAE political analyst whose articles appear in several Englisih publications.