Energy and What The Iran Talks May Foreshadow

While the negotiations in Iran regarding nuclear discussions have only limited energy impacts, there are several implications that are worth reviewing.

First, let’s review the bidding.  As the intense negotiations in Vienna reached an agreement, US political leaders, many former negotiators and foreign affairs expert are all expressing concerns about the results.   But President Obama has strongly defended the agreement saying the deal will stop Iran’s progress on developing a nuclear bomb.  The challenges remain in whether the world trusts Iran to follow the deal and allow verification.

Over many years, the Iranian regime has deliberately used the illusion of “trust building” to neutralize necessary and indispensable “transparency” measures that are critical components of any successful nuclear agreement.  Against this backdrop, negotiators should have done a better job of insisting on anytime, anyplace snap inspections of all sites, unhindered access to all individuals and documents associated with the nuclear program, no sanctions relief until Tehran’s full compliance and automatic snap-back sanctions if Iran cheats.

So what will the real impacts be?

Certainly on global oil issues, there will be an impact.  Lifting sanctions on Iran could flow up to 1 million more barrels of oil per day into the market further tilting the oil supply-demand imbalance.  Moreover, recent reports says the rise in oil production could spark a drop in the spot price and tighten the spread next year. There is just one catch though: the world already has too much oil right now which should mitigate immediate impacts.

And of course, exactly when the sanctions will be lifted remains in the air. And even when it does, many experts think because its infrastructure is in such disarray, Iran’s projections for what it can produce are overly optimistic. It will likely take a year or longer for Iran to add significant production, so it seems its true impact on price may be modest at best.

Another area gaining a higher profile is the argument for crude exports in the US.  Advocates for lifting the ban have seized on the deal to highlight that while Iranian crude can soon make the global market, US crude still could not.  But while the political dynamics may favor the argument, it is clear that the current glut of oil in the global marketplace would only force price down and limit any positive economic benefits of lifting the US ban.

On the climate front, negotiations on Iran’s nuclear program may also contain important lessons on the dynamics of international negotiations, which may influence ongoing efforts to reach a new international agreement on climate change in Paris later this year.

Certainly the first lesson is one of political implications.  Without an common political understanding on what the Paris outcome should be, the negotiations will certainly fall short.  For years, UN Climate talks have been plagued by political disagreements and certainly overcoming them on issues of real importance – like nuclear weapons – should help design an international roadmap for discussion of less importance.

Also, it would benefit the climate talks to adopt a posture that will require commitments to be verified.  Right now that remains a sticking point in Vienna, but it will certainly be a sticking point in Paris in December because most countries, despite bold statements and lofty emissions reductions targets, will not meet or make the reductions they propose.  Verification – or the trinity of monitoring, reporting and verification is far less dramatic, but equally important, for the climate talks.  But don’t hold your breathe.  The political hot air at UN negotiations is always much more prevalent that a willingness to make real reductions.

Finally, a few weeks ago 47 US Senators led by Sen Tom Cotton wrote to the ‘leaders of Iran’ to warn them that the terms of an agreement made by the Obama administration could be voided or altered by the US Congress ‘at any time’.  The intervention has did not prevent a deal, but it certainly helped create the current 60-day review period we are in.  Indeed, the possibility that the ‘leaders of the rest of the world’ might see a similar letter ahead of Paris has not been lost on other observers.

During a recent Senate Environment Committee hearing, Sen. Jeff Sessions said Republican lawmakers could take a page from  Cotton’s playbook warning international climate negotiators that Congress has concerns about President Barack Obama’s efforts to develop a climate change agreement.  These type of spoilers could be a major factor in the run up to Paris.

The Iran deal seems to be a bad deal for the U.S. and the world despite the political rhetoric from either side.  While we might see some price benefit, there are much higher risks for our and our allies security.  The talks have also given us some insights to what we might expect in Paris. More of the same.


Frank Maisano is a Founding Partner of Bracewell Giuliani’s Policy Resolution Group.

Morning Consult