Falling oil prices might salvage Iran talks

While I remain pessimistic about the current state of the nuclear negotiations, if anything could get the Iranians to budge on uranium enrichment, it would be the impact of falling oil prices on the Iranian economy:

Iran’s economy, weakened by years of mismanagement and Western sanctions, has enjoyed something of a resurgence in recent months. Rouhani’s economic aides have found ways to sell more petroleum products despite the sanctions, and an interim nuclear deal signed with world powers in November allows some increase in economic activity.

Auto production, for example, has increased by 90%, noted Salehi-Isfahani. The International Monetary Fund says Iran’s economy will grow 1.5% this year and 2.3% next year.

But Iran, like Russia, needs an oil price of more than $100 a barrel to balance its budget, experts say. And the benchmark Brent crude price is below $85 a barrel.

Salehi-Isfahani said the Iranian government had other ways to make up for that lost revenue, but they would come at a political price. It could, for example, ratchet up prices for oil in Iran, in effect charging Iran’s middle class for government programs that largely benefit the poor.

The new economic strain also undercuts Tehran’s strategy for dealing with world powers in talks over Iran’s nuclear program. Iran’s economic resurgence had enabled Iranian officials to claim they could get by even if the talks collapsed without providing further relief from tough international sanctions.

Now, you’ll note that the other country mentioned in that LA Times piece is Russia, which similarly needs high oil prices to keep its economy afloat. Conversely, then, this oil price drop might encourage Russia to be as difficult as possible in the talks in order to keep more Iranian oil from hitting the market and driving prices still lower, and there is at least one report that suggests that Russia is pushing back against a deal. On the other hand, Russia-Iran trade relations have gotten so close of late that Russia may prefer a quick end to the nuclear talks so that it can expand that commercial bond even faster.

The other possibility a report like this opens up is that the P5+1 could table the talks, let the low oil prices go to work on Iran’s economy for a year, and then come back to the talks expecting that by then Rouhani will be willing to accept their enrichment terms. I hope they avoid that temptation. That kind of tactic isn’t going to help bring about those improved relations that should follow from a deal, and an especially lopsided deal only gives Iran incentive to back out and demand a renegotiation later on. Contra James Carville, who may be right when it comes to politics, in diplomacy when your opponent is drowning, sometimes you really should throw them a lifeline rather than an anvil.


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