By Peter Coy 2020/10/30
Oil prices have sunk back to their lowest levels since the novel coronavirus lockdown in the spring (when, bizarrely, the price of West Texas Intermediate crude briefly touched negative $37.63 a barrel). The pandemic is still weighing on the oil market, but now there seems to be an additional factor: the increasing likelihood that former Vice President Joe Biden will be elected U.S. president and ease sanctions on Iran.
As this Bloomberg News story explains, if the economic sanctions on Iran that President Donald Trump imposed and recently tightened were eased, it would open the sluices for more than 2 million barrels a day of Iranian crude exports. “Within a few months after a Biden election, we expect some Iranian oil will be coming to market,” Iman Nasseri, the London-based managing director for the Middle East at consulting firm FGE, told Bloomberg. “It’s going to be a real headache for OPEC.”
Cheap oil used to be a pure win for Americans, but now that the U.S. exports almost as much petroleum as it imports, the equation has changed. And for Saudi Arabia and the Gulf states, cheap oil is a pure loss. Today’s prices are far below what they need to cover their governments’ expenses—thus, unsustainable.
Biden has expressed openness to returning to the Joint Comprehensive Plan of Action—the multilateral pact that aims to keep Iran from developing nuclear weapons—if Iran would return to full compliance with its terms. Iran, meanwhile, says it won’t return to full compliance until sanctions are lifted, so this is not an easy lift. But setting aside the merits of easing up on Iran, is there a way that Biden could do it without crashing the oil market?
Karen Young, a resident scholar at the American Enterprise Institute, had some ideas in a thought-provoking column for Bloomberg Opinion in early October. She wrote that the U.S. should start small, with “incentives to de-escalate regional tensions and to aid economic recovery,” rather than an immediate Iranian reentry into oil markets.
The U.S., she wrote, “should encourage Iran and its Arab neighbors to use 2021 for confidence-building measures, such as of cooperation in dealing with the coronavirus pandemic and other forms of economic engagement that had seemed possible when the nuclear deal was signed in 2015.” Iran, in turn, would be expected to disavow support for the Houthi rebels in Yemen, let inspectors back in, and “demonstrate willingness to cooperate with international initiatives.”
Stratfor, a geopolitical analysis company, envisions a similar incremental approach: In the early going, Iran might agree to stop enriching uranium or reduce advanced centrifuges in exchange for relief from non-oil-related trade restraints and maybe a “specific volume” of oil exports.
If the confidence-building measures go well, then by 2022, when the world economy and oil demand are presumably stronger, the U.S. and Iran’s Arab neighbors would be more open to letting additional oil flow out of Iran. Seems like a plan.