Tel Aviv, Zurich Probably never before in the negotiations that have been going on since 2021 has a deal seemed more tangible: the USA and Iran could soon conclude a new agreement on the Islamic Republic’s nuclear program. The European Union, which mediates in the negotiations in Vienna, recently drew up a final version of the contract. Both parties to the conflict recently signaled that an agreement appears possible in a few weeks.
A new Iran deal would have far-reaching geopolitical and economic consequences: an end to the US sanctions that have paralyzed Iran since 2018 as a result of the failed nuclear deal could strengthen the regional power. This is associated with risks for the USA, as Iran has recently made a name for itself as a drone supplier for Russia.
The price of oil recently fell well below the $100 per barrel mark – also because traders are pricing in additional oil supplies from Iran. Iran is the third largest oil producer in the OPEC export alliance. So far, however, US sanctions have largely banned Iranian oil from the world market.
In 2017, under then-US President Donald Trump, the United States unilaterally withdrew from the deal negotiated by the previous government. The treaty, which Iran and the permanent members of the UN Security Council, including Russia and China, as well as the EU and Germany have signed, is intended to set strict limits on Iran’s uranium enrichment.
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The signatory states wanted to ensure that Iran could not build nuclear weapons. For its part, Iran saw itself no longer bound by the agreement after the United States withdrew and pushed ahead with uranium enrichment.
Liberation for Biden
In the meantime, however, both sides are interested in a compromise, says David Menashri, one of the leading Iran experts at Tel Aviv University. A new edition of the deal could give US President Joe Biden more breathing room in the fight against high fuel prices. The Iranians, in turn, hoped for an economic upswing.
But Menashri warns against too much optimism: “Every day the negotiators take one step forward and then two steps back.” Helima Croft, Opec expert at the investment bank RBC Capital Markets, also warns of caution: Iran’s supreme leader, Ali Khamenei, is staying “a skeptic about the agreement and is the final decision maker”. In addition, Iran had already expanded its nuclear activities in the past – contrary to its promises.
A nuclear deal with Iran should provide some relief on the energy markets.
(Photo: via REUTERS)
According to information available so far, the deal prohibits Iran from producing uranium with a purity of 60 percent. Instead, the maximum purity should be limited to 20 percent. Enrichment to 90 percent would be necessary to produce nuclear weapons.
In return, Tehran is demanding a binding commitment from the United States that the agreement cannot be terminated. The regime in Tehran wants to prevent a future US government from again unilaterally withdrawing from the agreement. Any future president would therefore be obliged to abide by the agreements. Biden cannot agree to this demand, says an American diplomat.
The Al Monitor newspaper quotes an EU source as saying that there will be no new round of negotiations at the next meeting of the chief diplomats of the mediating states the agreement will be passed in Vienna – if it comes about.
Iran is hoping for an investment boom
Economically, there is a lot at stake for both the energy markets and Iran. Opec expert Croft from RBC Capital Markets estimates that an additional one to two million barrels of crude oil per day could come onto the market in a relatively short time. That corresponds to one to two percent of global oil demand. The prerequisite is that Iran reverses the violations of the agreement originally concluded in 2015 and that the International Atomic Energy Agency (IAEA) checks whether Iran has fulfilled its obligations.
In addition, the country would have to dispose of its highly enriched uranium stocks and stop working on alternative ways of producing plutonium. “We anticipate that it will take several months for all major energy sanctions to be lifted,” Croft said.
Financial analyst Maciej Wojtal from Amtelon Capital, who specializes in the Iranian economy, expects an investment boom in Iran in the event of a deal. Domestic companies would take advantage of more readily available financing, along with foreign direct and portfolio investment. Significantly higher oil revenues would eliminate the budget deficit and improve the country’s current account, which in turn would stabilize the currency.
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Should the nuclear agreement not come about, according to Wojtal, Iran is threatened with an economic crisis. Iran’s currency is likely to plummet, driving inflation higher. In the long term, the lack of the necessary investments in gas, oil and electricity infrastructure led to energy shortages and a recession. “The country would also likely face social unrest as the weak currency and high inflation hurt real household incomes,” Wojtal warns.
Even if it is currently uncertain whether an agreement will be signed, officials in Tehran have already praised the Iranians’ negotiating skills. They wrested a number of concessions from the USA and agreed that the modern centrifuges developed by Iran would not be destroyed, contrary to the original agreement, but stored under the supervision of the IAEA. That would allow Iran to resume enrichment on a large scale should the deal later fail.
In Washington, on the other hand, the successes of the US negotiators are praised. The rapprochement was made possible primarily through concessions by Tehran. For example, Iran is refraining from removing the Iranian Revolutionary Guards from the list of foreign terrorist organizations. Politically, the sovereignty of interpretation is important – but only results count for the oil market.
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