Economy

Falling oil prices might nudge Iran toward nuclear deal, report says

Gas pumps
Gas pumps Dallas Morning News/MCT

The crash in global oil prices heightens pressure on Iran to strike a nuclear deal with the West and escape crippling international sanctions, according to a report released Tuesday.

Iran’s budget is driven by oil, and the steep price drop is making the country’s economic problems even worse.

At the same time, the worldwide oil glut, which is causing the price to plummet, means the West doesn’t need Iranian oil and has more leverage to negotiate, according to the new report by Roubini Global Economics and Securing America’s Future Energy, a nonpartisan group led by business and military leaders such as FedEx Chief Executive Frederick Smith and retired Gen. James Conway, the former commandant of the U.S. Marine Corps.

“For the first time since the United States and other world powers confronted Iran over its nuclear program in 2006, today’s oil market conditions allow (the negotiators) to work toward the best possible deal without risking oil price volatility and damaging consequences for the global economy,” said Sam Ori, the executive vice president of the energy group.

House Foreign Affairs Committee Chairman Ed Royce said the United States should consider the impact of low oil prices in crafting its strategy for dealing with Iran’s supreme leader, Ayatollah Ali Khamenei.

“Is there something we could do to put additional pressure to really bring the ayatollah to make the calculus that it’s better to compromise on the nuclear program than have an economic collapse in Iran?” the California Republican asked at a forum Tuesday at the Capitol.

New York Rep. Eliot Engel, the top Democrat on the Foreign Affairs Committee, agreed that the oil-price drop should give Western negotiators “more confidence” in their positions.

Some analysts are skeptical, though, that the leverage from low oil prices will do much to push a compromise.

“The Iranians have shown an impressive willingness to hold their ground in the face of tremendous economic pressure,” said Elizabeth Rosenberg, the director of the energy, environment and security program at the Center for a New American Society, a nonpartisan research center in Washington.

Efforts to reach a deal limiting Iran’s ability to make a nuclear weapon have so far failed, with both sides agreeing last week to extend discussions for seven months.

Global oil prices have plummeted nearly 40 percent since the summer. If they don’t rebound sharply in the coming year, Iran’s oil revenue will fall by more than $10 billion and end up far below what the country needs for its budget requirements, according to the report from Securing America’s Future Energy and Roubini Global Economics.

Iran’s economy already is suffering from international sanctions that include a European Union ban on buying Iranian oil. A nuclear deal with the West might allow Iran to increase its oil exports, although that would drive prices even lower and so might not offer much relief to its economy.

A bigger factor in the nuclear talks might be the strengthened hand of a West that doesn’t need Iran’s oil for the global market, according to the report.

Western negotiators worried in the past that sanctions taking Iranian oil off the market would raise prices and hurt their own economies. But that’s no longer an issue with low prices created by a glut of oil, led by U.S. production.

“For perhaps the first time in the history of efforts to deal with Iran’s uranium enrichment activities, Western-led negotiators can work toward the best deal possible without the added burden of maintaining stability in global markets,” the report says.

The West can even threaten to impose more oil sanctions on Iran now without worrying about the economic damage that could result, the report argues.

Ori said oil prices would go up eventually, so the leverage on Iran is not forever.

“While current conditions will likely hold through 2015, this suggests that there is a temporary window in which to work to strike a deal,” he said.

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