Home News Economy Iran Defies OPEC and Western Investors, Continues Shift Toward Russia and China

Iran Defies OPEC and Western Investors, Continues Shift Toward Russia and China

Not only has Iran re-committed itself to moving its production in the opposite direction as its supposed cartel partners, but the Iranian target figure for that production has apparently increased again. Initially, Iranian officials had spoken of four million barrels per day as the production level that would match pre-sanctions output. But more recently, that figure drifted upward to 4.2 or 4.3 million barrels, despite the fact that even the lower figure was reportedly an optimistic assessment of pre-sanctions output. Some independent sources find that while that output may have briefly spiked to four million barrels, Iran’s sustained oil production prior to the imposition of sanctions was nearer to 3.6 million barrels per day. 

Now, the Wall Street Journal reports that the latest increases in production capacity are part of a long-term plan to continue increasing total output to 5.7 million barrels per day by the year 2020. Furthermore, the plans outlined in that article will serve to enrich solely Iranian institutions, including an energy company that is ultimately controlled by Iranian Supreme Leader Ali Khamenei. That company’s new contract with the Iranian government is reportedly worth 2.2 billion dollars and is based on model contracts that were revealed over the summer and were expected to improve prospects for Western businesses interested in investing in the Islamic Republic. 

Earlier contract models had been regarded as overly restrictive, as they sought to limit the amount of access that foreign entities could have to Iranian assets. Although the new templates supposedly lift some of those restrictions, the Wall Street Journal report suggests that Iranian authorities are presently devoting their efforts to utilizing the new contracts in order to give independent but state-affiliated institutions greater control over Iranian assets, while still holding the West at bay. 

This interpretation of Iran’s actions appears to be at odds with persistent Iranian rhetoric blaming the US for the slow pace of European investment. But although figures like Khamenei and President Hassan Rouhani have repeatedly called upon the US to lift the remaining sanctions on the Islamic Republic, they have taken few if any concrete steps to enable that outcome. These would include providing international banks with assurances that the Iranian financial system is no longer at risk from money laundering or links to terrorism. 

In fact, any suggestion that Iran change its behavior to facilitate improved foreign relations has been met with hostility. On Monday it was reported that Iranian Foreign Minister Javad Zarif had rebuffed the German Economy Minister’s statement that Iranian-German relations could only normalize after Iran recognized Israel’s right to exist and ceased its interference in Syria. And on Tuesday, Reuters reported that Speaker of the Iranian Parliament Ali Larijani had cancelled a meeting with the Sigmar Gabriel, while Larijani’s brother and judiciary head Sadeq Larijani declared that he would not have even allowed such a person to enter the country. 

Such actions and statements raise serious questions about whether the Iranians would truly embrace Western investment even if there were no remaining obstacles in the form of banking restrictions. Even so, this has not prevented European commentators from urging the US and its allies to lift those restrictions and give Western businesses a better chance of reopening full-scale trade with the Islamic Republic. The German financial news outlet Handelsblatt ran an article on Tuesday claiming that Europeans were losing out to their Asian competitors, as Iran welcomed the latter while waiting on the former. 

But it is equally possible that Iran is not so much waiting as it is moving the goal posts for Western investment, much as it has been moving the goalposts for the limits of its own oil production. In this way, Iran may be able to encourage the West to keep pursuing investment, even as Iran also voices anti-Western rhetoric and limits the number of investments it actually helps to facilitate. 

Some important Western deals have gone forward, such as the sale of commercial aircraft by Europe’s Airbus and America’s Boeing. But the overall status of Iran-US relations has made such deals difficult for American leaders to justify politically. And this situation shows no sign of changing. On Monday, for instance, the US Navy had dispatched ships to the coast of Yemen after Iran-backed rebels damaged a United Arab Emirates auxiliary ship. Fox News notes that the incident was reminiscent of another last year in which an Iranian ship blatantly carrying arms shipments to the rebels was forced to turn back by the US Navy. 

Confrontations between Iranian and American vessels and aircraft have been on the rise in recent months. Iranian Revolutionary Guard Corps patrol boats have approached passing US Navy vessels at high rates of speed, in one case refusing to disengage until warning shots were fired into the water. And last month, at least two Navy jets received radio warnings that they would be shot down with missiles if they strayed into Iranian airspace. 

Such confrontations presumably contribute to the nervousness of Saudi Arabia and other Arab countries in the midst of expanding Iranian influence in the broader Middle East. This nervousness has certainly elicited responses from those Arab states, several of whom joined in a coalition to fight back against the Iran-backed rebels in Yemen. And now, Saudi Arabia appears to be preparing for the possibility for more direct confrontations with Iran on the water. It was also reported on Tuesday that Saudi Naval forces had begun a series of live-fire drills in Persian Gulf citing an interest in protecting the area “against any possible aggression.” 

Naturally, the reports of these maneuvers point out that they are taking place in the midst of a general increase in tensions between Shiite Iran and Sunni Saudi Arabia. Those tensions have thus far found their most prominent outlet in propaganda statements surrounding such issues as sectarian violence and the recent hajj pilgrimage. But the Iranian refusal to participate in an OPEC agreement is also an apparent example of the same overall tensions. 

Of course, the discord operates on both sides, and the Saudi insistence upon Iranian participation was surely motivated in part by an effort to constrain Iran’s economic recovery and thus its further expansion of influence throughout the region. Bloomberg suggested on Tuesday that the Saudi decision to provide Iran with an exemption was indicative of Iranian success in the economic aspects of their conflict. The report describes the Saudis as being in the midst of “financial havoc,” which necessitated that they concede to Iran in order to raise international oil prices before the crisis in that market does more damage. 

The Bloomberg report notes that Saudi Arabia is moving to limit long-cherished government subsidies and is cutting ministerial salaries, implying that the Sunni kingdom was less capable of weathering the depressed oil prices than was Iran. But it is also possible that the Saudi decision to back down before Iran is indicative of Iran’s willingness to overextend itself to a greater degree. After all, Iranian President Hassan Rouhani previously moved to limit his government’s sanctions, although the political backlash made this untenable. Subsequently, there have been numerous other indicators of economic pain within the Islamic Republic. 

The National Council of Resistance of Iran has released numerous reports on this topic, sometimes quoting Iranian officials themselves as acknowledging rapidly escalating rates of unemployment and inflation, and a situation in which as much as one-third of the population is living below the poverty line. Iran’s most recent Iranian budgets have entailed decreases in the real value of various government employees’ incomes. And although corruption has led to outrageous compensation for some persons with high-level government connections, this has become a serious scandal in light of the dire economic situation facing much of the country. 

On Monday, Agence-France Presse noted that as many as 400 public sector officials now face prosecution over their excessive salaries, as the government seeks to rein in these trends, possibly out of fear of the long-term effects of such lavish spending. 

If this does indeed reflect an Iranian economic crisis to rival Saudi Arabia’s difficulties, then one might think that it would call for Iran to take more proactive steps to open itself up to foreign investment. But other reports can be viewed as indicators that Iran is indeed taking such proactive steps, but is doing so in a way that focuses more attention on its relations with countries other than Western nations and certain regional adversaries. 

That is, at the same time that Iran is maintaining adversarial relations with Saudi Arabia, it is apparently pursuing cooperation with another object of traditionally strained relations, Turkey. The Globalist published an article on the relations between these two countries on Tuesday, and it indicated that in spite of their differences over the future of the Assad regime in Syria, the two have found common ground in other areas, especially economic outlook. For the sake of providing Turkey with incentive to overlook their differences, Iran may have also interceded in Syria against a group that is at odds with Turkey but has not connection to the Assad regime. 

The article concludes that Iranian-Turkish relations will have to stand up to serious challenges if they are to persist, including the threat of accidental engagement from opposing sides of the Syrian Civil War. The article also notes that Saudi Arabia is putting pressure on Turkey to reconsider its recent adjustment in regional focus. Such pressure could be persuasive if Iran has nothing other than its own import markets to offer to Turkey. But the Turkish decision-making process may be significantly complicated if Iran is part of a trade partnership that represents an alternative to Western dominated markets.  

There has long been speculation that this is something the Iranians are actively pursuing, and some of the latest evidence of this came in the form of comments by Iran’s Consul General in Pakistan. The Times of Islamabad quoted Mohammad Hossein Bani Assadi as saying that Iran is very eager to join the China-Pakistan Economic Corridor. Relations between Iran and China have been expanding considerable over the past year, as have relations between Iran and Russia. Together with a number of smaller partners, this tripartite alliance could represent a serious challenge to the West, and cooperation with oil-rich Russia could even help Iran to continue moving away from and defying OPEC.