Iran
talks have right mix for
history By Chris Cook
"The era of procrastination, of
half-measures, of soothing and baffling
expedients, of delays, is coming to its close. In
its place we are entering a period of
consequences."
Winston Churchill's
rhetoric in 1936 is as relevant now, as the "Iran
Six" nations prepare to meet Iran in Istanbul
later this week, as it was then. (The "Iran Six"
or P5+1 are the five permanent members of the
United Nations Security Council - Britain, China,
France, Russia and the United States - plus
Germany.)
I believe that this meeting,
through the consequences which will flow from it
during the following months, has the potential to shape
history. Unlike most
observers, I am optimistic as to the outcome.
The prize "While many regions of
the world offer great oil opportunities, the
Middle East with two thirds of the world's oil and
the lowest cost, is still where the prize
ultimately lies" - Dick Cheney, Halliburton
chief executive officer, Institute of Petroleum,
London 1999.
When Cheney came to power as
US vice president in 2001, he was able to act to
secure the oil prize, based on his belief that a
peak in oil production was imminent.
The
first act was the campaign to liberate Iraq's oil,
and the demonstration of the sheer scale of US
arms and fire-power had a salutary effect on
recalcitrant nations generally and on the
potential nuclear troublemakers, Libya and Iran in
particular.
Libya's capitulation was
sufficient for Muammar Gaddafi to be able to
remain in power for a few more years, while Iran
immediately ceased all work on nuclear weapons and
offered - via the Swiss - everything the US was
looking for, short of regime change.
Pragmatists such as then secretary of
state Colin Powell, who considered that this olive
branch should be accepted, were over-ridden: the
neo-conservatives were riding high, flushed with
success: real men go to Tehran!
The
ill-prepared and catastrophically badly managed US
occupation of Iraq rapidly bogged down, and the
realization that Iran was instrumental in the
Iraqi resistance led to the gradual ramping up of
the Iranian "nuclear threat" as a casus belli.
But in 2007, the world changed.
Currency wars By 2007, the sheer
scale of US dollar liabilities to China led to the
opening of a new front. I believe that at this
point - in the same way that the US, as principal
creditor, vetoed further British adventurism at
Suez in 1956 - the Chinese called a halt to US
adventurism by using an economic veto - ie
mutually assured economic destruction.
I
believe that energy security is a red line issue
for China as much as for the US, and China was
prepared to pull the plug on the US economy unless
they pulled out of Iraq, and refrain from
attacking Iran.
We have entered into a new
era of policy and diplomacy as a result: an era of
currency wars.
The US and Israel have in
my view been warned off any physical attack on
Iran or other significant oil producers without
the consent of China and are therefore restricted
to sanctions ... and this is where it gets
interesting.
Oil sanctions are a
completely dumb policy, which Beijing has not been
unhappy to see because they enhance China's
bargaining power and potentially enable it and
other consumer nations to buy discounted oil from
Iran to fill their reserves. Threats by the US to
apply sanctions to China and the other BRICS
nations (Brazil, Russia, India, South Africa) are
in my view a bluff.
Financial sanctions
are another matter, and it is true to say they
have been instrumental in motivating Iran to come
to the table. But these sanctions, which have now
extended to persuading the craven Belgian
domiciled SWIFT bank messaging system to throw out
Iranian banks generally and the central bank in
particular, will have unintended consequences with
far-reaching effects.
Iran - a window
of opportunity Whereas in the West power is
exercised through the banking system, in the
developing world it is exercised by those who
control resources, and particularly valuable and
saleable energy resources like oil and gas.
What we have seen in Iran may be viewed as
an ongoing struggle for control of oil and gas
resources during the privatization process, with
close parallels to the oligarchic struggle that
took place after the end of the Cold War in
Russia.
Since the election of President
Mahmud Ahmadinejad in 2005, we have seen an
ongoing power struggle that culminated in April
2011 with an attempt to take control of the
crucial Intelligence Ministry. At that point, key
players in the Army of the Guardians of the
Islamic Revolution (aka Islamic Revolutionary
Guards Corps, or IRGC) and elsewhere sided with
the present leadership, and a political battle was
then left to play out during the approach to the
recent Iranian parliamentary elections.
Although these elections were dismissed
outside Iran, they were instrumental in conferring
legitimacy on the winning faction. Once it was
clear that the Ahmadinejad faction had been
soundly defeated, action has followed swiftly by a
leadership more confident than it has been for
years.
An overture was made within days to
the P5+1 to restart negotiations, and key
ministers have been given much more freedom of
action free from obstructionism, too often based
upon personal vendettas and rent-seeking.
The nuclear element of the offer made by
Iran in 2003 is possibly now back on the table.
Former ambassador Hossein Mousavian, who was
Iran's nuclear negotiator at the time, supported
this view recently in a US article. I also believe
that for his part President Barack Obama has -
unlike president George W Bush in 2003 - ruled out
military action aimed at regime change.
The question is whether the demands by the
P5+1 will be politically acceptable to Iran, and
things are not looking good so far, if one listens
to the spin from the US and European Union in
relation to demands for closing down and even
dismantling the underground nuclear facility at
Fordow, near Qom. The key questions are what
common ground there is among the members of the
P5+1 and whose view will be dominant?
US and EU strategy My analysis
is that the Obama administration's strategy is to
negotiate a politically advantageous settlement
with Iran in the months leading up to the November
election, and to manage down the oil market price
as the Iran "risk premium" leaks away.
This market management would be achieved
through continuation of the macro-market
manipulation of the crude oil price orchestrated
since 2009 between JPMorgan Chase and the Saudis
(with fellow members of the Gulf Cooperation
Council - Bahrain, Kuwait, Oman, Qatar and the
United Arab Emirates).
This has been
achieved through the facilitation by JPMorgan of
Enron-style "pre-pay" financing of Saudi crude oil
inventory funded by risk averse "inflation
hedging" passive investment.
The result of
such a strategy would be a "win/win" prior to the
November election. The first "win" would be for
Obama to have largely resolved an issue that cost
president Jimmy Carter re-election. The second
"win" would be a managed pre-election reduction in
the politically sensitive US gasoline price to
below US$2.50 per gallon. Obama's opposition has
nothing remotely resembling a credible policy to
achieve this.
France, Germany and the
United Kingdom will probably take a harsh line in
an attempt to be "holier than the pope", whether
through grandstanding prior to an election
(France); an imaginary "special relationship" with
the US (UK), or a generally pro-Israeli line
(Germany).
Russia and China On
the face of it, Russia has - like all producers -
a short-term interest in prolonging the risk
premium on oil as long as possible, but no medium-
or long-term interest in oil price levels that act
to destroy demand, as now, particularly in their
closest markets.
China, on the other hand,
would wish to see the end of sanctions and the
risk premium which goes with them, and also to
maintain the privileged access to Iranian oil that
they have been assiduously cultivating for years.
My analysis is that Russia and China will
be inclined to accept the sort of Iranian terms
set out by Mousavian, and more to the point, they
have the economic clout to back up their position.
"How many divisions has the pope?"
- Joseph Stalin
Or in this context, how
many barrels has the Group of 7 leading
industrialized nations? This is the question that
exemplifies realpolitik at its most brutal. The
fact is that the oil sanctions imposed
unilaterally by the US and EU on Iran are
counter-productive, and they benefit those who do
not participate. In the event of a disagreement at
Istanbul or subsequently, China, India, South
Africa and others will undoubtedly buy, at a
price, every barrel Iran can sell.
But it
is through over-reaching in relation to financial
sanctions where the US may well have made a major
strategic error. At the very time when the banking
system is in crisis, the last thing the US should
be doing is forcing a major oil producer like Iran
to make alternative arrangements.
A secure
messaging system - which is all that SWIFT
actually comprises - is actually pretty trivial to
replicate, and all it needs is participants, which
may or may not be banks, that are looking to clear
and settle obligations.
When the BRICS
nations met late last month in New Delhi, at the
top of their agenda was a BRICS bank. There is no
reason at all why such a credit institution need
pay heed to US sanctions in respect of Iran
because, quite simply, the US needs the BRICS more
than the BRICS need the US. In fact, there's no
reason why it needs to be a bank at all, as
opposed to a BRICS credit clearing network or
clearing union.
I suspect we are now
entering a period of consequences ... unforeseen
consequences.
Chris Cook is a
former director of the International Petroleum
Exchange. He is now a strategic market consultant,
entrepreneur and commentator.
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