The debate has already begun on whether the deal struck between Iran and a number of other world powers including the United States will serve the international community well. There are short term considerations as well as the long term expected results. The discourse is about was this the best deal that could be expected,given the intransigence of the present regime in Tehran? It is important to remember that the lifting of sanctions, the unfreezing of Iranian assets, and the ability to sell unlimited amounts of oil, will have a dramatic impact in the Middle East and for investors around the world.
There are complicated layers of restrictions and sanctions that have been applied by individual countries and the world community at large. There are a myriad of issues that make the agreement difficult to understand and even harder to enforce. The signatory nations of China, France, Germany, Russia, the United Kingdom and the United States have been in negotiation since November of 2013.
The accord that has been agreed to is limited to the nuclear proliferation and due to a last minute concession by the negotiators, conventional sales of weapons to the Iranian regime in 5 years and missiles in 8 years. It does not deal with numerous other issues that involve Iran regionally as well as internationally.
Once the agreement is in place, the restraints on the largest economy not part of the international financial system, will have been removed. Iran with a population of 78 million and an economy of $370 billion USD (United States Dollar) will be in business once again. The release of up to $150 billion USD in frozen assets, will allow the country to spend a massive amount of money. It would be equal to the United States being given $8 trillion USD.
Another major change for the Iranians will be the unfettered sale of their oil to the international market. The need for crude, is the reason why China was aggressively pushing for a deal on nuclear weapons. Iran has proven reserves that comprise 10% of the global supply and is recognized as the third largest in oil. The country is recognized as having the second largest reserves of natural gas, with some estimates giving them 17% of the total world supply.
According to a number of energy analysts in the industry, Iran will be able to supply an additional 200 to 700 thousand barrels daily to the world market, as early as 2016. This would be in addition to the oil that is already allowed, about 1.4 million barrels daily in 2014. It is estimated that Iran has anywhere between 20 to 40 million barrels in floating storage that will come on the market as well.
Record high global production and a slowing Chinese economy will lead to a downward pressure on oil prices for the rest of 2015 and into 2016. International oil prices have already slumped 3%, as a result of the anticipation of increased supplies. Iran could provide up to 4 million barrels a day within a year. The previous level of production before the application of the international sanctions by Europe and the United States in 2012 was 2.6 million barrels.
However, one must consider that Iranian production will be constrained by lower crude prices much like Russia, the United States and Venezuela. Lower demand for oil will make much of the Iranian production, uncompetitive at lower prices. Iran factored $100 USD for fiscal 2014 and lowered it to $72.00 USD in 2015. The Iranian government receives 45% of its budgetary needs from oil sales.It is important to note, that Brent crude is now selling for below $57.00 USD a barrel and trending downward. Oil in the United States (WTI), has already declined to below $50.00 USD again. Oil prices are at their lowest level since April.
Iran presents an enormous opportunity for investors, if they are willing to work around the many restrictions and prohibitions placed on foreign capital by the government. With the sanctions ending, Asian and European companies are getting ready for a race in opening up the Iranian economy to the international economy. If American companies are reluctant to invest there, it is not a sentiment shared elsewhere.
The unintended consequences of the present nuclear deal are immense. There are many that claim that since the agreement in the end, permits Iran to become a nuclear state an arms race will now commence. A number of nations in the Middle East and Saudi Arabia particularly, will feel more far more threatened now. These countries are most likely going to pursue their own programs. The Gulf States specifically, easily have the financial resources to support nuclear plans of their own.
Israel long isolated in the region, will now find new allies who also feel threatened by the rising power of Iran. The coming hegemony of the country that was once called Persia, has caused a recalculation in the foreign policies of nations throughout the Middle East. Countries that are geographically close to Iran like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates will now need to devote far more assets for defense.
The Iranian government has made it clear that in addition to Israel being destroyed, a major objective of their foreign policy is the overthrow of the monarchies that surround the Persian Gulf. The mullahs of Iran consider these governments to be corrupt and puppets of Western interests in the region. It does not help that these countries are mostly Sunni Muslims, whereas Iran is mostly Shiite. These two sects of Islam, have been at odds almost since the founding of the religion in the 7th century.
Iran has not been a force for stabilization in the Middle East. The country has been identified as the leading sponsor of terrorism in the world. Their financing of groups like Hezbollah in Lebanon, Hamas and Islamic Jihad in Palestine, as well as the past close connections to Al Qaeda, the Taliban and related groups, have created chaos not only in the region, but on a global scale.
More recently, Iran is involved in a proxy war with Saudi Arabia in Yemen. Although the Islamist Houthis insurgents have their own agenda inside the country, the support of the Iranian government has been crucial to their success in overthrowing the president of Yemen and leading the country into full fledged civil war.
The present American foreign policy position in the Middle East is a reversal of what had been a more activist role beginning in 2001, under former President George W. Bush. The United States now seems content to advance positions by negotiations and through proxies.
The result has been a reduction of American power and prestige in the region. The withdrawing of the American military position in the region has led to a power vacuum, that both ISIS (Islamic State of Iraq and Syria) and Iran have been more than willing to fill.
The decision to normalize economic relations with Iran will have dire consequences. As Iran expands its power in the region, neighboring countries will either be forced accept the new reality or form a coalition to prevent further expansion. A general war now becomes far more likely.
The situation in the Middle East already complicated, will become far more dangerous with a well armed and financially secure Iran. There is no country in the region, that has not been touched by the growing conflagration of terrorism sponsored by either ISIS or Iran. The contagion is also spreading to Europe, Asia, Africa and soon the Americas.
The nuclear deal has not moderated the stance with the present regime in Iran. It has actually emboldened the government there to press forward, with the agenda of destabilization and the undermining of neighboring countries.
The worst part of the accord is that Iran much like North Korea before them, will not abide by the prohibitions specified. There will be an endless game of cat and mouse where international inspectors will be denied access to a specific site. When the investigators finally do arrive weeks later, most evidence will have been removed to a new location.
Increasingly, more of the clandestine activity of the Iranian nuclear activity will be done at secret underground locations that are unknown to the IAEA (International Atomic Energy Agency). Flush with cash, Iran will have the ability to import and hide more of what it needs to continue its domestic nuclear program.
If Iran is caught violating parts of the nuclear accord what will be the response of the international community? It is unlikely that sanctions will be reapplied. Even if they are, the time involved will still permit Iran to continue almost unfettered, with the development of a nuclear program. It is likely that more negotiations will commence, allowing the Iranians to play for even more time.
The template for a nuclear breakout has already been set. One only has to observe what previously occurred with North Korea. Interestingly some of these same negotiators who were hoodwinked by the Koreans, are now involved with the present talks. What you do is continue to play for time by endless negotiations, until you acquire nuclear weapons. The threat from more punitive actions at that point are then removed.
The only way to prevent Iran from achieving nuclear status at that point, is an embargo or a military attack. A total embargo is an act of war and a military attack will be inconclusive, unless there is a land invasion. Either scenarios are unlikely, given the unwillingness of the global major powers to confront this growing threat.
It is far more likely that Iran will not only gain access to the ability to make a bomb, but have a means of delivery within the decade, regardless of any accord or treaty. Short of military force, there is no way to prevent this coming debacle. All the present accord does is that allows political leaders to pretend, that they have temporarily hamstrung Iranian nuclear ambitions.