With the Revival of the JCPOA in Jeopardy, Crude Oil Price Can Only Go in One Way: it's up!

 

The probability of reviving the JCPOA, 2015 Iranian nuclear deal, appears to be heading towards the statistical minimum at present, judging by the rhetoric from the new Iranian administration led by President Raisi and the latest US position highlighted by none other than President Biden on Sunday.

When the new US administration came to power, Iran showed some flexibility in reviving the deal and there were a few rounds of talks in this regard in Vienna, Austria. It was, however, when President Rouhani was in power as the president of Iran; at some point during the negotiations, Mr Rouhani even said that the revival was imminent that, unfortunately, turned out to be a false dawn.

With the arrival of the new administration led by President Raisi, the Iranian position gradually evolved into a hardened stage, reaching a peak recently; Iran now wants the sanctions to be lifted before any negotiations to start.

Iran’s foes in the region, in the meantime, lost no time in grabbing the latest development to say that Iran was simply buying time up until it could reach the ultimate goal – the nuclear bomb. By contrast, Iran denies it and says its nuclear programme is for peaceful purposes that include generating power.

The US administration has been saying that the time was running out for reviving the deal and its patience was wearing thin for the past few weeks; it explicitly said that the ball was in Iranian courts.

Although the US tried it best to get the Iranian delegation back to the negotiation table in Austria, its efforts, made in good faith, have been constrained by what Iranians used to brand as the ‘West Asian regimes’: by reading between the lines, it is not rocket science to figure out which nations were on Iranian radar; they, however, are forces to be reckoned with in the region that the US cannot ignore.

A few months ago, with a meeting with the visiting Israeli prime minister, Naftali Bennet at the White House, President Biden went public by saying, if the 2015 nuclear deal failed, the US would have ‘other options’ to pursue, without spelling out what there were, leaving the task of the interpretation open to mere speculations.

In response to a media query, President Biden on Sunday raised the stakes by implying that the US was inching closer to the ‘other options’. Iran, having sensed the evolving strategic moves on many fronts, accused President Biden of being the same as his predecessor , President Trump.

Iranian top generals, meanwhile, have been upping the ante in recent weeks by saying that any ‘misadventure’ by Iranian foes would be met with a ‘crushing response’, using its air, naval and of course, drone power. Simultaneously, Iran has turned to Russia for help in dealing with significant cyber-attacks on its vital institutions, both civilian and military.

Last week, for instance, an extensive cyber-attack completely disrupted the distribution of subsidised oil to the Iranians for a couple of days.

In Israel, meanwhile, the IDF, Israel Defence Force, are practising a military drill, simulating an attack by Hezbollah with a barrage of rockets at the rate of 2000 a day on the northern region of the Jewish state.

Although Israel is no stranger to simulating military drills, the exercise in question is significant in light of the flight of the B-1B Lancer that passed over the Gulf, Bab al-Mandeb Strait, Suez Canal and Gulf of Oman as well as the Strait of Hormuz on Sunday, being escorted by the fighter jets from Israel, Saudi Arabia, Egypt and Bahrain.  

Despite the apparent unity against Iran’s nuclear issue, the US military help for the region is something that its allies cannot take for granted – anymore.

It wants its allies to make a fair contribution in the event of a military conflict in favour of the former – in line with the Trump doctrine; president Trump used to complain about the US being taken advantages of by the allies during his tenure frequently.

When the US bombers flew over the Middle East at the weekend, the US was quick to acknowledge the contribution of its allies that flew fighter jets in escorting the bomber, implying its desire to see allies being engaged in the same in the future too – a stark deviation from the previous US position, a decade ago.

The flight over the Strait of Hormuz is particularly significant as the waterway plays a key role in the transportation of the fifth of the world’s crude oil. Military analysts fear that Iran may use the Strait of Hormuz as a bargaining chip in the event of hostile acts breaking out against it.

Although Iran has not been confrontational against its foes by direct means, the latter believe Iran is using its drones through various proxies to expand its influence.

Getting into a military conflict with the US – and its allies – or not, the stakes cannot be higher for Iran: its economy has been in the doldrums for years; in addition, Iran experiencing many problems on environmental front too, ranging from acute water shortages to land subsidence, even in Tehran – the capital with over 15 million inhabitants.

In order to tackle these issues, Iran needs money and expertise from various sources. When it cannot sell its top revenue-earner, crude oil, in this context, its economic situation can only get grimmer.

The Iranian government may find it difficult to trigger off patriotism that resonates with its masses, when the cumulative economic pain bites them. At worst, it could be a serious political miscalculation, especially when there are no credible mechanisms in place to gauge the public mood.

In light of these developments, as far as crude oil markets are concerned, the misplaced anxiety over the crude oil markets being oversupplied by Iranian contributions may slowly die down in the coming weeks, unless a miracle changes the status quo of the nuclear stand-off.

The Iranian nuclear issue, perhaps, played its role in the modest rise in crude oil price on Monday, when markets opened. As of 12:30 GMT, the price of WTI and Brent were $84.00 and $84.29 respectively.

The likelihood of the price of crude oil going up is high due to the potential failure of reviving the JCPOA in the current circumstances.

The oil traders, however, have a responsibility to act in such a way that they do not kill the golden goose, because commodity price had notoriously followed the flight path of a boomerang in the past.