On June 13, 2018, US President Donald Trump tweeted: “Oil prices are too high, OPEC is at it again. Not good!” And on June 22, he tweeted: “Hope OPEC will increase output substantially. Need to keep prices down!” On June 30, Trump announced that he has asked King Salman of Saudi Arabia to “increase oil production, maybe up to 2,000,000 barrels, to make up the difference [for Iranian and Venezuelan oil]…” and concluded that “he has agreed!” But days later, he tweeted that “The OPEC Monopoly must remember that gas prices are up & they are doing little to help… REDUCE PRICING NOW!” In other words, while Iran – which is believed to be the target of Trump’s policy – is an OPEC member, Washington expects OPEC to deliver on its demands.
While some have argued that Trump’s tweets have further raised oil prices, Trump is obviously expecting the opposite from the OPEC. And while oil producers endured huge setbacks in terms of their oil revenues in recent years, Trump’s Iran policy – which seems to be the driver of his administration’s oil policy – has set oil prices on a steadily rising trend. The link between Trump’s Iran and oil policies has become obvious in words and deeds. In an attempt to suck out all the oxygen from Iran’s economy, so that the country finds itself with no other choice than to call for another nuclear deal (a move that would “prove” once more Trump’s famous “art of the deal”), the US President has been pressing US allies and partners to stop all oil imports from Iran by November 4, 2018. Washington has also been encouraging its oil producing partners, , including Saudi Arabia, to increase production to absorb the shock of Iran’s oil cuts.
When announcing the US withdrawal from the Iran nuclear deal or Joint Comprehensive Plan of Action (JCPOA) last May, President Trump said that he will be waiting for Iran to return to the negotiating table for a more comprehensive deal. He repeated his wish at the recent NATO summit. For its lack of trust of an administration reneging on an international settlement, Iran replied by claiming – via both the Supreme Leader Khamenei and President Rouhani – its unwillingness to engage with Washington’s demands. Expecting such an outcome, Washington reinstated nuclear-related sanctions on the one hand, and started imposing new sanctions at a rapid pace. The obvious reason for these actions is to force Iran into a new set of arrangements. But some in Tehran have been arguing that the US aims at dragging Tehran into a course that would pave the way for a regime change in Iran, which would greatly impact the region’s political dynamics.
Faced with the mounting pressure of sanctions – both materially and psychologically – Tehran perceived the new US policy as a trade war. The Supreme Leader said that the “operation room is now in the US Treasury Department” and that Iran will “much live up to the new warfare”. In yet another indication of Tehran’s cautious approach, it was leaked that an “economic war room” was formed under the Supreme Leader himself. While these can be seen as expected steps by a regime under mounting pressure, they are yet to prove effective.
While some in Tehran argue that the US is waging a currency war, like that it waged in 2012 in US-led sanctions against Iran, the Iranian rial lost half of its value in the first half of 2018 – dropping from roughly 4000 to 8000 rials for one US dollar. And though President Rouhani has lost much of his public appeal, the currency drop doubled his administration’s revenue out of oil and petrochemicals export – giving him the ability to maneuver economically on the short run. But the main question remains whether Rouhani’s administration can stay above the water in the long run, in face of mounting pressure and renewed US sanctions.
Since the main portion of Iran’s budget comes from its oil and petrochemicals exports, stopping those exports can damage its economy and its ability to deliver services and, as such, can pose a threat to the country’s stability and even survival. But will the US be able to stop Iran’s oil exports and what options will Iran have in the face of such a threat? Though there are serious doubts surrounding Washington’s ability to stop Iran’s exports, Tehran cannot ignore the threat. The US obviously can pressurize Iran’s oil industry and force huge companies in the field out of the country – Total is already preparing to pull back. And while Washington can hasten its diplomatic efforts with allies and partners, some are deeply opposed the new Iran policy and the US will have to do so in an unwilling and hesitant international community.
Therefore, Washington will have to force these unwilling allies in order to face Iran. During the height of US-led sanctions and in the years leading to the JCPOA in 2015, it was only the EU that stopped purchasing Iranian oil. Other main purchasers (China, India, Japan, South Korea and Turkey) continued – though on a decreased level – buying Iranian oil. Last May, China, India, Japan and South Korea accounted for about 65 per cent of the 2.7m barrels a day Iran exported that month. This time, far from being in harmony with the crippling US sanctions, the EU is now the party trying to give Iran a way out to keep it committed to the JCPOA. It has proposed to guarantee that Iran exports at least a million barrel a day en, according to reports. Therefore, the political will that once bound the EU to the US’s Iran policy is no more. Besides the EU’s change of policy, it is expected that Russia and China will be even more hesitant to abide by US demands.
There are serious doubts on the practical level as well. Without Iran’s oil, shocks are expected in the oil market. And despite Trump’s hope of a Saudi back up to keep oil prices low, many experts have casted doubts on this scenario. Importers like Turkey, South Korea or India are all unlikely to be able to stop all their Iranian oil imports by November. The latest OPEC meeting, against which Trump lash out in tweets, is an indicator in this regard. Though Riyadh increased oil export by half a million barrel a day in June 2018, the global prices did not drop drastically – as Mr. Trump would like it. Therefore, even with the Saudi increase, Iran’s oil export is roughly the same as before. Within such an environment, the prevention of Iran’s oil shipments can send huge shocks to the global market. On July 10, besides blaming Trump for higher prices, Iran’s oil minister said that Iran’s oil exports had not been affected negatively. In other words, up until now the Trump policy did not bear the expected outcomes for Washington. It did, however, create higher uncertainty in the global market. Besides Saudi’s limited potential, this is because world demand for oil is on the rise. OPEC forecast that global oil demand will cross 100 million barrels per day for the first time in 2019. In general, cutting Iran from the oil market is going to be problematic and a long process – if possible at all.
Though both the political will and the practical means are not there to back Trump’s Iran policy, Iranian officials have moved to counter-threats against the US policy. President Rouhani, for instance, said that “the United States will never be able to cut Iran’s oil revenues,” and that “it has no meaning for Iranian oil not to be exported, while the region’s oil is exported.” More explicitly, he threatened to “stop [Iran’s] oil exports and see the results”, a threat praised by Qasem Soleimani in a rare public support of Rouhani by the IRGC commander. Later on, the head of the Iranian Revolutionary Guard Corps (IRGC), Major General Jafari said that Iran can make the enemy understand “what using the Strait of Hormuz for all or none means.”
While the Trump administration is yet to push forward its policy, Tehran seems more united against the US threat. As such, there have been four indicators for escalations in recent months: first, Trump’s withdrawal from the JCPOA and re-imposing of sanctions on Iran; second, Tehran’s unwillingness on renegotiating a deal with the party reneging on it; third, the increased pressure and sanctions on Tehran; and forth, Iran’s suicidal options coming up in the aforementioned threats. It is yet to be seen if the EU can stop the catastrophe.