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NS4053 Winter Term 2015 Iran Sanctions: No Nuclear Deal

NS4053 Winter Term 2015 Iran Sanctions: No Nuclear Deal. Overview of Nuclear Talks. Oxford Analytica, “Iran: Oil Sector Faces New Sanctions Without Deal,” October 2, 2014 Ongoing nuclear talks Deadline November 24 after extending an interim arrangement in July Deal would be expected

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NS4053 Winter Term 2015 Iran Sanctions: No Nuclear Deal

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  1. NS4053 Winter Term 2015Iran Sanctions: No Nuclear Deal

  2. Overview of Nuclear Talks • Oxford Analytica, “Iran: Oil Sector Faces New Sanctions Without Deal,” October 2, 2014 • Ongoing nuclear talks • Deadline November 24 after extending an interim arrangement in July • Deal would be expected • to set severe limits on Iran’s nuclear activities • to result in a progressive lifting of nuclear related sanctions imposed by the U.S, EU and UN • Agreement far from certain • How will Iran’s oil sector be affected by talks’ failure in the short and longer term?

  3. Impacts of Sanctions Impacts • A lengthy period of slow economic contraction and stagflation is likely without a deal • As sanctions erode, China in particular would take more Iranian oil • By 2020 Iranian oil production and exports may be around 1 million barrels/day, below 2011 levels of 3.5-3.6 • Iran’s main buyers would fill gap from other Middle East suppliers, most likely Saudi Arabia and (depending on security issues • Sanctions on Iran’s energy sector have been steadily ratcheted up in recent years resulting in significant under-performance relative to massive potential

  4. Key Sanctions on Energy Sector • The key sanctions on the energy sector include: • Investment in Iran’s energy sector and the transfer of technology • The supply of refined products to Iran • The shipping or insurance of Iranian oil exports • The repatriation of Iranian funds from oil sales, except to by goods from the purchasing country; and • The export of petrochemicals or precious metals (temporarily suspended in the July package) • The most significant sanctions • Completely ban the export of Iranian crude oil to EU countries; and • Aim progressively reduce crude sales to other countries

  5. Iran Sanctions Developments I • Currently only six countries permitted to buy Iranian oil: • China, India, South Korea, Japan and Turkey • They have been expected to cut their purchases on a continuing basis • Falling oil production • As a result crude oil production fell from around 3.5-3.6 million barrels a day during 2011 to 2.77 million b/d in 2014 • Country eared $114.8 billion from oil exports in 2011 • This fell to $61.9 billion in 2013 • In addition to sanctions, mismanagement during the Ahmadi-Nejad (2005-2015) caused a fall in production

  6. Iran Sanctions Developments II • No Deal Scenarios • Current talks likely to break down entirely in late November 2014 • Continue for sake of appearances if no deal reached • In this case Obama administration would have to yield to Congressional pressures for additional measures • Efforts would be made to persuade Iranian’s remaining customers to continue reducing imports • Oil Market Conditions • Oil markets are easing with slow world growth and expanding US production • Gives US more chance of enforcing stricter sanctions • In event of Russian crises deepening or other event causing sharp rise in oil prices, sanction on Iran oil exports might crumble

  7. Iran Sanctions: Longer Term Effects • Eroding Sanctions: In longer Term • China in particular would probably seek loopholes to sanctions regime while Iran would explore deals elsewhere • China could resort to more barter trade, a dedicated oil bank and using domestic refiners not dependent on international transactions • India has already made some progress in arranging alternative tankers and insurance • There has been repeated talk of an arrangement with Russia, although logistics are difficult • Turkey is likely to continue its gas purchases , given its need for alternatives to Russian supply • If sanctions erode slowly, Iran’s oil production capacity would continue a gradual decline, although lower production would ease the strain on its fields

  8. Iran Sanctions: Assessment • Macroeconomic Implications • Competent management of economy could cushion the worst from the new sanctions • Assessment • With no agreement on Iran’s nuclear program US and EU sanctions will be intensified • Would reduce Iranian oil exports further in short term, damaging the Iranian economy • Over the rest of the decade sanctions would gradually erode • However lack of investment would cause permanent damage to Iran’s production and export capacity

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