Will Russia Suffer As A Result Of The Deal With Iran?


Far from strengthening Russia’s hand in negotiations with the U.S., some commentators believe Russia could be weaker as a result of the deal.

Iran is a topic which Russia used to justify its position on a number of geopolitical issues, but the announcement of an historic deal may mean that Moscow finds itself with a weaker hand in negotiations with the United States and other nations, writes Dina Gusovsky for CNBC.

Flow of Russian oil to Europe could be affected by Iran deal

One area which will be impacted are Russia’s oil exports to Europe. Ed Morse, head of commodities research at Citigroup, told CNBC that Russia’s position will be weakened by Iran’s re-entry into the world oil market.

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“Oil companies in Europe, especially the Mediterranean market, are eager to strike upstream exploration and production contracts in Iran and will want to show that they are eager to resume business ties there,” Morse said. “The best short-term way to do that is to buy more Iranian crude, and the main victims of that will be Russia along with Iraq.”

Donald Jensen, resident fellow at the Center for Transatlantic Relations, predicted that Russia would suffer as a result of a deal long before its terms were finalized. He claims that Iran’s improved access to global energy markets will provide competition for Russia.

“Even as it tries to keep good ties with Moscow, Iran will likely offset them by pursuing better ties with the West,” he said.

Russia thinking in the long term?

Other commentators think that Vladimir Putin is being sincere when he calls the deal a positive step for the Middle East. Russia had various opportunities to torpedo a deal with Iran but did not do so, says Alexander Kliment, director of Russia and emerging market research at Eurasia Group.

“The short-term oil price drop, if and when it materializes, will hit Russia, but for the Kremlin, that’s a manageable price to pay in order to avoid a nuclear arms race in the Middle East or a U.S./Israeli strike on Iran, both of which have always been far worse options from the Russian perspective,” Kliment said.

“In addition, easing the U.N. arms embargo will open up a potentially lucrative market for Russian arms exporters, who have already built good ties with the Islamic Republic,” he continued.

Has Russia brought about its own downfall?

Russia’s economy has become increasingly reliant on exports of oil and natural gas due to a moribund industrial base. Sanctions imposed following the annexation of the Crimea and falling oil prices have combined to severely weaken the Russian economy.

Morse states that he is bearish on the price of oil, and predicts softer prices in Q4, and slightly higher prices going into 2016.

“But if Iran produces with a surge, it should weigh heavily of oil prices,” he told CNBC. “We are looking for a modest recovery of WTI to $56 in 2016, but a surge in Iranian production would make that unlikely.”

Despite the risk of Iranian oil depressing world oil prices, Moscow played an influential role in bringing the deal forward, says Matthew Rojansky, director of the Kennan Institute at the Wilson Center.

Support for the deal may end up being a shrewd move from Vladimir Putin, but it may come at the expense of economic pain in the short term. Of course Moscow could recoup some of its oil losses selling arms to Iran, but any arms deals will be supervised by the United Nations Security Council.

While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. <i>To contact Brendan or give him an exclusive, please contact him at [email protected]</i>
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