Fueling an Iranian comeback

Related Categories: Arms Control and Proliferation; Energy Security; Resource Security; Iran; Middle East
 

When it comes to Iranian behavior, the past may very well be prologue.

Currently, all eyes are on the nuclear talks in Vienna, where negotiations over Iran‘s reentry into the 2015 deal known as the JCPOA may end up falling apart over unexpected last-minute demands from Russia, which is serving as a key interlocutor.

What isn’t well understood, however, is that Iran’s economic fortunes — and its strategic ambitions — are already expanding, even ahead of any new deal with the West, thanks to the soaring world price of oil.

The numbers tell the story. When it recently formulated its national budget, Iran’s government based its calculations for its upcoming year (stretching from March 2022 to March 2023) on exporting 1.2 million barrels of oil a day at $60 a barrel. But Russia’s new war in Ukraine has sent the world price of oil skyrocketing. As a result, Iran is suddenly receiving far more than its anticipated annual revenue, and those funds can be used not only to prop up its regime but also to fund its foreign adventurism.

And if a new nuclear deal does materialize after all, Iran’s windfall will become bigger still. One of Iran’s core demands in the recent negotiations in Vienna has been a rollback of western sanctions on its oil and natural gas exports — a stipulation that the Biden administration has given every indication of green-lighting. If the U.S. does indeed remove meaningful restrictions on Iran’s oil and petrochemical exports, the results would be a tremendous boon to Tehran. That’s because Iran has massive quantities of oil, estimated to total around 120 million barrels, stockpiled domestically or in foreign locales, that can be quickly brought to market. It is also believed that the Islamic Republic could ramp up its oil output in short order, and Iranian officials have already announced plans to produce as many as 4 million barrels per day within weeks of sanctions being removed.

All of that, moreover, would come on top of the direct sanctions relief that the Biden administration is poised to proffer to Tehran. Writing recently in Tablet, Gabriel Noronha, a former State Department official, estimated that the Iranian regime will receive “$90 billion in access to foreign exchange reserves” from the White House as part of any new deal, as well as a “$7 billion ransom payment the United States is preparing to pay for the release of four Americans from an Iranian jail.”

The last time Iran received a comparable infusion of capital was in 2015. Back then, as a result of the nuclear deal it concluded with the P5+1 powers, the Islamic Republic agreed to temporary restrictions on its nuclear development in exchange for upward of $100 billion in both direct and indirect sanctions relief. The resulting flood of cash to Iran was enormous, equivalent to one quarter of the country’s annual GDP (which totaled $415 billion in 2014). And the impact on Iran’s strategic ambitions was dramatic, leading to a surge in defense spending, an expansion of the regime’s support for regional proxies, and new progress in its work on ballistic missiles and space launch capabilities.

Today, after an interregnum spurred in large part by the Trump administration’s “maximum pressure” policy, we find ourselves on the cusp of a similar dynamic. In recent years, regional observers have taken note of what has been characterized as a “shadow war” that the Iranian regime is waging in the Middle East. This effort encompasses a range of irregular activities, from cyberattacks to online disinformation efforts to support for radical proxies. Yet these efforts, while both dangerous and destabilizing, have so far been constrained by the inherent weakness of the Iranian economy.

They may not be for much longer.

The surging world price of oil, coupled with the Biden administration’s persistent plans to “reset” relations with Iran no matter the cost, has the power to fuel a revival of Tehran’s regional ambitions — and to significantly expand the threat it poses, both in the region and beyond it.

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