The interim-deal with Iran should be given a fair chance, argues Friedbert Pflüger, Director of the European Centre for Energy and Resource Security (EUCERS). The world economy would benefit if Iranian oil and gas exports could be restored. The climate would benefit if the massive flaring of gas in Iran and the prevailing energy inefficiency could be reduced and renewable energy investments stimulated.
The P5 +1 finally reached an interim deal on Sunday to curb the Iranian nuclear program in exchange for initial sanctions relief, which may pave the way for a rapprochement of historic proportions. However, it was also met with sharp criticism from Israel, as well as some members of the U.S. Congress. Nevertheless, the breakthrough will give Iran, and President Rohani’s new administration, the chance to be tested. There is good reason to believe that Tehran is serious about finding a long-term solution to the decades-long impasse. This is because it is apparent that Iran’s current push to find a diplomatic solution to the issue is driven more by self-interest than anything else. In foreign policy, there is no motivation that is more honest than that.
During a recent energy conference on Iran’s Kish Island in the Persian Gulf, one could sense the yearning of representatives from various business sectors for a compromise
The latest round of sanctions have taken a heavy toll on the Iranian economy. The country’s oil exports have dropped by seventy percent in the past year, with Iraq now overtaking Iran to become OPEC’s second-biggest oil producer. The loss of oil rents, which constitute nearly half of government revenues, coupled with the freezing of international assets as well as the cut-off from the international banking system have drastically reduced Iran’s reserves of foreign exchange and pushed the inflation rate to forty percent. While many government-controlled sectors are undoubtedly feeling the sting of the sanctions, average citizens are being affected even more drastically. The price of food and consumer products has risen dramatically. The unemployment rate, which stands at nearly thirty percent, is higher than that of recession-plagued Greece. The US can be proud: Never in the history of foreign policy has there been a sanctions regime that was more effective.
Against this backdrop, Iran both wants and needs to put an end to the sanctions. This is why we can deem the recent charm offensive of President Rohani in Washington and Iran’s initial concessions in Geneva to be sincere. What is needed now is constructive cooperation from all sides. It is not about naïve appeasement but, instead, about a policy that provides President Rohani – who has to contend with powerful conservative rivals at home – a real opportunity to demonstrate success. One has to allow him to extricate the country from the corner that his predecessors pushed it into.
During a recent energy conference on Iran’s Kish Island in the Persian Gulf, one could sense the yearning of representatives from various business sectors for a compromise. The new Petroleum Minister Bijan Zanganeh, who is considered a respectable energy expert in the West, the self-critical and objective Economics and Finance Minister Ali Tayebnia, as well as leading executives from energy, mining and manufacturing companies all had one key message: Iran must reintegrate itself into the world economy and get its exports rolling again. To what extent these assembled individuals can actually convince the religious leaders of the country, and above all Supreme Leader Khamenei, is difficult to ascertain. However, there is much to suggest that the pressure on the broader populace and the economy of the country is so great, that it will be difficult even for the spiritual leader of the country to dismiss calls for reaching a permanent deal.
Over the long-term, the world will need Iran’s energy resources
A long-term solution to the issue is in the interest of all parties. Iran could finally exploit the full potential of its vast natural resources. It has the world’s fourth largest oil and the second largest gas reserves. However, its oil and gas infrastructures are outdated and inefficient. Iran flares more gas annually than the entire yearly output of Azerbaijan. The country did have various plans to develop and modernize its energy sector. These included exploring new fields and developing current ones, boosting the oil recovery factor as well as completing additional phases of the giant South Pars gas field in the Persian Gulf.
Production sharing agreements
However, none of these plans came to fruition due to the absence of international energy companies and technological capacity. Iran needs to rebuild trust and pursue new forms of cooperation and partnership in order to draw foreign investors back in. This could, for instance, be achieved by offering production-sharing agreements (PSAs) instead of the less-favorable Iranian buyback contracts to energy companies looking to invest in the country, as Iraqi-Kurdistan has successfully been doing for the past few years. However, there is strong resistance against the presence of foreign companies, and particularly foreign energy companies, within the country. Here, international oil and gas companies must also do their part to restore trust. They have to come as partners and not as exploiters.
Over the long-term, the world will need Iran’s energy resources. The IEA projects that global energy demand will grow by more than one-third over the period to 2035. What is more, Iran’s heavy dependence on oil and natural gas, which constitutes ninety-eight percent of the country’s total energy consumption, has left the vast potential and benefits of renewable energy virtually untapped. One of the first steps that can be taken in the energy sector, should sanctions be lifted, could be a big energy efficiency and renewables initiative between Iranian and international companies.
The political gains for all parties involved could be even greater than the mutual economic benefits of a potential reintegration of Iran into the world economy. A nuclear deal with Iran could eventually pave the way for political reconciliation, similar to the Gas-for-Pipes deal between Germany and Russia during the peak of the Cold War. The international community understands Israel’s reservations regarding a deal with Iran, especially in light of threats made against it by President Rohani’s predecessor. It is Prime Minister Netanyahu’s duty to make sure that Iran’s intentions are genuine. However, for Israel, a permanent agreement between Washington and Tehran would ultimately mean more long-term security than the present situation of threats and fears.
Dr. Friedbert Pflüger is Professor and Director of the European Centre for Energy and Resource Security (EUCERS) at King‘s College London.