Daniel B. Markind, Esq.
Weir and Partners, LLP
Iran is in the throes of a possible revolution. Venezuela is on the edge of collapse. So are New York and New England thinking about energy sources? Nah.
On Monday, President Trump announced he was prepared to meet Iranian President Hassan Rouhani at any time and any place without preconditions. “I’d meet with anybody,” Trump said. “I believe in meetings”.
As with North Korea, Trump’s about-face confused many. The week before Trump had threatened Iran. The President warned that Iran faced the possibility of “consequences the likes of which few throughout history have suffered before.”
Calling it a humiliation, Rouhani dismissed Trump’s offer to meet. He said before any meeting took place the United States first must return to the Iran nuclear deal, from which Trump withdrew in May.
What does this all mean? How will it impact energy prices and the energy industry?
The answers are this means everything both to world peace and the price of energy. It would be wise for people to understand it.
Depending on whose estimates you use, Iran possesses either the third or fourth largest amount of proven oil reserves in the world. Since the theocratic Iranian revolution in 1979, however, and especially since Iran aggressively began pursuing its nuclear program and funding militant Islamic groups in earnest, it has faced international sanctions. These severely hindered Iran’s ability to market its oil.
Those sanctions were lifted in 2015 upon the signing of the Iranian Nuclear Deal. Controversial from the start, the deal negotiated by President Barrack Obama with his Secretary of State John Kerry and assistant Wendy Sherman forced Iran to state that it permanently forsook nuclear weapons. Iran also give up certain elements of its nuclear stockpiles and suspend its enrichment of uranium for ten years.
Few took seriously Iran’s pledge to swear off its pursuit of nuclear weapons. In effect then the West made a huge bet. The signatories gambled that during those ten years Iran would either (a) see the benefits of the lifting of world sanctions and modify its international behavior accordingly, or (b) see its theocratic government fall.
The Mullahs saw things differently. Flush with cash and new markets, they used that money to ramp up their efforts to control the Middle East. They funded and encouraged the Yemenite Houthi rebels, the Shiites who live in Eastern Saudi Arabia, Hezbollah and Hamas (which is Sunni but accepts Iranian financing and supply). They intervened in Syria, propping up the government of Bashar Assad. This brought them to Israel’s doorstep. It also connected them to Hezbollah in Lebanon and created a “Shiite Crescent” from Iran to the Mediterranean.
What the Mullahs didn’t do was use the money to help their people. The average Iranian, so hopeful of a better life in 2015, is now frustrated and angry. Late last year violent anti-government protests broke out in cities throughout the country, but curiously not the capital, Tehran. For the fire time, demonstrators shouted anti-government slogans and demanded an end to Mullah rule.
Last month it was Tehran’s turn. Merchants in the bazaar, which had been the cradle of the 1979 revolution and a bastion of theocratic support since, went on strike and created their own anti-government protests.
None of this stopped the Mullahs and their vanguard, the Iranian Revolutionary Guard Corps (IRGC). To the contrary, they continued their adventurism. Since May, Houthis have fired on Saudi ships in the Straits of Hormuz, where much Middle Eastern oil gets shipped, and Hamas operatives have been sending kites, balloons and even condoms laced with explosives to set fire to Southern Israel. In Israel’s north, IRGC members are advancing to close proximity of the Israeli border as they help Syria’s Assad rout ISIS and the remaining rebel forces. Israeli newspapers are full of stories that Israel has lost its deterrence and that a major war now is imminent.
While international pundits panned President Trump’s move in withdrawing from the 2015 accords, the Iranian citizens acted differently. Iran’s currency, the rial, is crashing. On January 1 the rial traded at 42,000 rials/$1. By last week it was up to 100,000 rials/$1. In just two days this week the rial dropped another 18%, entering what some are calling a “death spiral”.
The American press has been AWOL. Probably less than 1% of Americans know that a major Mideast war may be very close.
We now have a race. Will Israel reach a point where it no longer can tolerate IRGC presence in Israel’s north and Hamas’s eco-terrorism in the South (about which no environmental organization seems to care) and launch an all-out attack, or will the internal Iranian economic disaster either destroy the regime or force it to pull back and use its money at home?
Either way there will be mass instability. With instability means uncertainty, and little likelihood of consistent oil prices. Saudi Arabia suspended temporarily its oil shipments until it increased security. Next week the first round of major US sanctions gets re-imposed on Iran. The country with the largest oil reserves, Venezuela, is such an economic basket case that it is losing 40,000 barrels of production per month. That means you have three of the five largest oil producers either choking on its own stupidity (Venezuela), bottled in by aggressive neighbors (Saudi Arabia) or being forced to look for other markets because of its own adventurism yet being limited by its own massive internal corruption (Iran).
Given all of this, and with fall and winter approaching, it would be wise for policy makers in all regions of this country to determine where their winter sources of oil and gas will come from. Should New York and New England fail to do so, they once again may be forced to seek importing Russian gas and oil. This may be problematic in light of today’s bipartisan demand in the US Senate for “crushing sanctions” against Russia following a report that Russia continues to try to meddle in American elections. Even if the sanctions don’t get imposed on transshipped Russian gas or oil, their importing would hand Vladimir Putin his greatest victory yet. How ironic that it would come from those in New England who claim to be so concerned about Russian influence in our country.
Daniel B. Markind is the Chair of the Business Group at Weir & Partners LLP. Mr. Markind has represented individuals and companies in the energy industry for over 20 years. Mr. Markind is asked frequently to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.