Iran and Petroleum Prices

One of the overlooked stories of 2014 was the causes of and the geopolitical implications from the dropping oil prices. Numerous articles were written covering aspects of it, yet so few actually tried to look at the situation from the most broad of perspectives.

As everyone knows, the price of oil per barrel and at the pump has dropped over the last few months, mostly as a result of the relationship between demand and supply changing. Supply has been ramped up, especially by US producers. The United States now produces the most oil it has since 1985, and more than all of the OPEC countries including Saudi Arabia. At the same time, OPEC is also producing record amounts.

Many of the countries in OPEC have oil-dependent economies, and fluctuations in the price of oil affect the way their government operates. The budgets are set to expect a certain price of oil, and if the price drops below this, they will have budgetary problems. Iran in particular is facing difficulties, as the sanctions implemented against the Islamic Republic, combined with a lower price of their most important export has greatly reduced potential revenues.

Even though many of the OPEC countries are now facing possible budget deficits, the cartel agreed to not withhold supply and drive up the price of oil. It appears as though the Saudis and the Gulf Nations are willing to withstand lower prices in the short term, because it damages their bitter rival the Iranians, and OPEC's diminished global influence due to US shale oil producers.

Some have framed this as a purely anti-Iran move, but it is a bit more complex than this. If the OPEC members reduce supply, they are not only working with US oil companies, they are acting in a manner that is only beneficial in the short-term. By working together to keep oil prices low, they will soon drive many of the US shale oil companies out of business.

Fracking (shale oil extraction method) was adopted by American (and Canadian) companies because oil had previously been significantly more expensive, and the fracking process can require a higher break-even point to be profitable. If these companies are allowed to continue to operate (by keeping oil prices high), the damage to OPEC countries will continue. Conversely, if these companies are driven out of business, OPEC has a good chance to regain it's control over world petroleum markets.

The US has long had a policy of utilizing Middle Eastern oil over North American for geo-strategic reasons (see citation in my previous blog). Oil production's increase in North America is striking. Is this a last ditch effort to obtain as much shale oil as possible before the environmentally-damaging process is banned? Is there another "back-up" supply of extractable petroleum or is this the US's last 'trump card' in the oil market?

In some ways this looks like a plot between the Saudis and Americans to damage Iran, Russia and Venezuela financially, but there are quite a few other angles which complicate the situation greatly. Lastly, the insistence by Iran that OPEC cut production, shows Iran's financial woes are very real, and that economic mismanagement by the previous administration in conjunction with external pressures have seriously damaged the economy.

Iran and Nuclear Safety (or lack thereof)

Belarus, Cuba, India, Israel, Libya, Pakistan, Sudan, Syria. Most would think that being on this list is a bad thing, however, in this particular instance, it is not. These countries have all signed (and most have also acceded to or ratified) the Convention on Nuclear Safety. Notably missing, Iran and North Korea. While I've written on why Iran and North Korea should not be compared, in this one case I feel as though showing that both of these countries are absent from a certain international treaty is important.

The Convention on Nuclear Safety was adopted in 1994 after several years of work. 'Its aim is to legally commit participating States operating land-based nuclear power plants to maintain a high level of safety by setting international benchmarks to which States would subscribe.' As this clearly describes, the treaty is intended to ensure that nuclear power plants are kept at a reasonable safety level. Nuclear accidents can affect many (see Chernobyl and Fukushima, not to mention 3 Mile Island), and regulating and ensuring the safety of these facilities is in the interests of all. 

Of all the states with nuclear power plants, Iran is the ONLY one that has not signed the CNS (they have also not signed other important nuclear treaties including 'the Convention on the Physical Protection of Nuclear Material (CPPNM), the Convention for the Suppression of Acts of Nuclear Terrorism, and the Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management.'). Why is it that a country whose expressed reason for developing nuclear technologies is only power and medical uses, has refused to sign this incentive-based treaty, which ONLY concerns safety and the protection of civilians? 

Iran keeps yammering on and on about how Israel has not signed the NPT (and yes they are right in this case). However after President Rouhani's speech criticizing the double standards of the West in being anti-terrorism yet conducting drone strikes which have killed innocents, doesn't this affair itself also demonstrate an incredibly disheartening example of double standards? 

Iran may claim that the West is imposing an agenda upon them, and that they are trying to force Iran to bend to the will of the West, but this argument is a problematic one. If Iran is so worried about the will of the West, why bother with the UN, or why be a member of any international treaty at all? Even more troubling is the fact that the CNS is purely incentive-based; it applies to safety at nuclear power plants so that nuclear accidents are less likely to occur. It has nothing to do with stopping or limiting enrichment (one of Iran's primary concerns and arguments with both the IAEA and the P5+1), or preventing countries from operating nuclear facilities.

This section of the preamble of the CNS provides important context: 

'…this Convention entails a commitment to the application of fundamental safety principles for nuclear installations rather than of detailed safety standards and that there are internationally formulated safety guidelines which are updated from time to time and so can provide guidance on contemporary means of achieving a high level of safety;'

If I had the ear of Iran (or any environmentalist groups anywhere) I would strongly urge them to commit the government of Iran to this important legislation. It could be an important confidence boosting step for both the P5+1 and Iran. The P5+1 would be encouraged by the fact that Iran is agreeing to an important civilian safety regulation, while Iran would be protecting its own citizens and scientists, and also those of the states near to earthquake-prone Bushehr, the site of Iran's nuclear power station. 

NOTE: I've written about this in the past as well. The blog can be accessed here: http://persophilia.blogspot.com/2013/04/earthquake-danger-at-bushehr.html 

Ali Vaez has written about Iran and nuclear safety, this publication with Charles Ferguson I find particularly compelling.

Mark Fitzpatrick, the director of the IISS's Non-Proliferation and Disarmament Programme also has an important paper on non-proliferation and nuclear safety which mentions Iran and the CNS. Access here:  http://www.nonproliferation.eu/documents/backgroundpapers/fitzpatrick2.pdf

Earthquake danger at Bushehr

Despite the problems surrounding the Fukushima Nuclear Reactor after the 2011 earthquake, nuclear work continues at Iran's Bushehr reactor. The plant is based in one of the most earthquake-prone regions of the world, yet work continues. Bushehr is supposed meant to be able to withstand earthquakes up to 7 on the Richter scale (the recent earthquake was a 6.3), but as Iran has not signed the Convention on Nuclear Safety (Even India, Israel and Pakistan who are not NPT signatories, have signed the CNS), it is subject to less oversight and safety measures. Nuclear accidents are potentially a huge problem and a radiation leak can affect millions, why not allow safety inspectors to help? Bushehr has nothing to do with the alleged nuclear weapons program, and has no military dimensions, so why not?

This article does a very good job of explaining internal and external fears of a nuclear disaster at Bushehr.


UPDATE 1: fixed broken link for updated Bulletin of Atomic Scientists website article