Trump’s ‘gift’: Why Iran tensions work for Russia

Iranian lawmakers burn two pieces of papers representing the U.S. flag and the nuclear deal as they chant slugans againts U.S. at the parliament in Tehran, Iran, Wednesday, May 9, 2018. Iranian lawmakers have set a paper U.S. flag ablaze at parliament after President Donald Trump's nuclear deal pullout, shouting, "Death to America!". (AP Photo)
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Donald Trump’s decision to leave the nuclear deal with Iran has already given Russia a significant advantage thanks to the dramatic rise in oil prices. But these would be much greater if Europe failed to support the wars of sanctions promoted by the United States, believes Maksim Rubchenko, and as forecasted by FRN analysts.

Donald Trump declared his desire to leave the Iranian agreement during the election campaign. So when a month ago the president announced that the US would not extend the document, few doubted he would not. In April, oil prices increased 14%, reaching the level of 4 years ago, 75 dollars per barrel.

Rubchenko believes it all depends on how Washington’s actions will influence Iranian oil exports, as the Iranian nuclear deal has brought Tehran back to the oil markets. Iran now produces about 3.8 million barrels a day, with 2 to 2.5 million barrels being exported.

Experts believe there are three possible scenarios. The first is in which Trump reduces the Iranian presence in the global market due to new sanctions and increases the price to 85-90 dollars per barrel.

First, this will slow China’s economic growth, given that Beijing is a global competitor to Washington. Second, it would serve as a motivation to increase the exploitation of shale oil in the United States. Third, worsening geopolitical tensions will increase investor interest in dollar assets, causing the US to reduce the value of its public debt.

The top American “friends” would also be at an advantage, says Rubchenko. Saudi Arabia hopes to push aside Iran in the oil markets by boosting its sales and reducing the budget deficit.

Because of the OPEC agreement, the Saudi exploration is almost 700 thousand barrels smaller than two years ago and, therefore, the country would be very glad to have an opportunity to bring that up.

At the same time, Israel, which in fact gave Trump the pretext to break the agreement in drafting a report on Iran’s alleged “clandestine” nuclear weapons program, gains serious military and political advantages.

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Thus, in Rubchenko’s mind it is expected that, by losing a lion’s share of oil profits, Iran will reduce its presence in Syria and Lebanon. In our view, while this is a certainly a dimension of Tehran’s decision making, it does not define it. Iran’s presence in Syria and Lebanon is a forward investment on many levels, stability, financial, historical, and ideological. Therefore, Rubchenko’s assessment here seems problematic.

However, and at any rate, most experts believe that a complete restoration of the sanctions regime against Tehran is almost impossible. One of the proofs of this is the reaction by Europe to Trump’s recent decision: thus the leaders of France, Germany and the United Kingdom hastened to mourn the step of the American president and refused to adhere to his stance.

It is clear that the sanctions contradict the interests of European companies, as the largest consumers of Iranian oil are, for example, Total French and Italian Eni.

Therefore, analysts believe that Trump will likely soon change his game, especially since he has already spoken about Washington’s willingness to review the deal.

The most likely scenario is that Trump is calling Iran and other signatories to conclude a new document or the slowing down of the position vis-à-vis European companies doing business with Tehran. Otherwise a “rebellion” of Europe is inevitable, says the expert.

However, even if Europe supports the US and comes out of the agreement, which is very unlikely, Washington and its allies will hardly achieve the advantages it seeks. It turns out that, in addition to the European continent, Iran sells oil to many Asian countries, including China. They will certainly stay out of the US “boycott.”

The most catastrophic scenario is the beginning of a real military conflict in the Persian Gulf region. Some analysts do not rule out that Trump may not be limited to economic sanctions and then move on to the “hot” phase of confrontation. Israel, for its part, can also put firewood in the fire.

In all these scenarios, the position of the Iranian conservatives are inclined to restore the nuclear program, and this increases the possibility of a real military conflict between the US and Iran, with Israeli involvement.

In fact, it can be concluded that the worsening relations between Tehran, Washington and Europe are advantageous for Russia. Rising oil prices ensure new profits and reduce the need to introduce new taxes. Moreover, this situation may lead Europe to refuse to support further sanctions against Russia.

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