With Oil Deal, Russia Pressures US on Iran

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With a new oil deal and promises to build another nuclear reactor, Russia appears to be trying to force the United States’ hand in negotiations with Iran over its nuclear program.

Last week reports emerged that Iran and Russia are currently in talks over an oil-for-goods agreement that would see Iran export 500,000 barrels a day of oil to Russia in exchange for unspecified goods and equipment from Moscow. As the Financial Times noted of the deal, with oil prices hovering at about $100 a barrel, this deal would yield about $1.5 billion of goods and equipment from Russia every month.

Unnamed officials from both countries expressed high levels of confidence about the deal to the Financial Times. A Russian official said of the talks: “Good progress is being made at the moment with strong chances of success.” An Iranian official similarly confided “Our desire is to sign the deal as soon as possible.”

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While there has been no confirmation of this from either side, it’s possible that the oil exports would be used to finance four new nuclear power plants in Iran that Tehran and Moscow have been in negotiations over. Russia built Iran’s first nuclear power plant in Bushehr after a German company refused to honor a contract from the Shah era to construct the plant. Since Hassan Rouhani’s election last summer, periodic reports — including from Russian state media — have surfaced noting that Russian and Iran are currently discussing the possibility that Moscow will build more nuclear power plants inside Iran.

Not surprisingly, the U.S. government has been quick to criticize Russia for trying to negotiate an oil-for-goods agreement. On Monday, Caitlin Hayden, spokeswoman for the White House National Security Council, told Reuters, “”We are concerned about these reports and Secretary (of State John) Kerry directly expressed this concern with Foreign Minister Lavrov today.”

She added: “If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the P5+1 agreement with Iran and could potentially trigger U.S. sanctions.”

In truth, the impact the potential deal would have on the P5+1-Iran negotiations depends on the exact details of the agreement, which are uncertain at the moment. In one scenario, the deal could be a potential motivator for Iran to try to reach a comprehensive agreement with world powers. More likely, Russia seeks to use the agreement to pressure the United States in the talks, particularly amid reports that the Senate is nearing agreement on a bill that would call for new sanctions on Iran.

The key question about the oil-for-goods deal is when it would go into effect. If the deal said that it would not begin to be implemented until a final agreement was reached between Iran and the P5+1 powers, then this would just be another incentive for Iran to negotiate the terms of a final agreement.

There’s reason to think that the deal is not intended for this purpose, however. First, at this time Russia has had adequate time to clarify the news reports by stating unequivocally that the deal would not go into effect until a final agreement is reached. The fact that it has not issued this statement is therefore revealing. Moreover, if those terms were in the agreement, it’s unclear why Iran would be so eager to conclude the deal. After all, if it is able to end the nuclear impasse with the West, it should have little issue exporting its oil for hard currency. The barter agreement would only make sense if the Western oil sanctions remained in place.

Therefore, the more likely scenario is that Russia is seeking to use this agreement to force America’s hand in the Iran negotiations. Specifically, Moscow is likely trying to ensure that the U.S. cannot maintain its current sanctions regime against Iran if Congress derails P5+1-Iran negotiations by passing new sanctions. One of the reasons why the U.S. and EU sanctions against Iran have been so effective is that third parties have largely obliged them. Their grudging acceptance of these sanctions depended in large part on the widespread perception that Iran had blown a sincere attempt by the United States to end the nuclear impasse when it failed to accept the fuel swap agreement the P5+1 proposed in late 2009. Therefore, the global perception was that Iran did in fact need to be pressured in order to negotiate in good faith.

This perception will change overnight if the U.S. Congress passes new sanctions on Iran during the negotiations, and Tehran subsequently pulls out of the talks. In this scenario, the global perception will be that Iran had tried to solve the nuclear impasse in good faith, but U.S. intransigence against Iran made that impossible. In such an environment, world powers like China and India will strongly resent being asked by the U.S. and EU to sacrifice their legitimate interests in Iran because of its nuclear program.

By signing this oil deal with Iran, Russia is not only trying to lead the way in defying the Western sanctions, but also may be seeking to divide the EU from the Americans. After all, before the oil embargo of the last few years, many EU nations invested in Iran’s oil and gas industries and relied on the Islamic Republic for their energy needs. These nations are likely to see Russia’s designs on Iran’s oil as a threat to their energy security, given their desire to reduce their dependence on Russian oil and natural gas. Since EU nations, like the rest of the world, will blame the Americans for torpedoing the P5+1-Iran negotiations, the potential Russia-Iran oil deal will only make these EU countries more determined to end the oil embargo against Tehran.

Thus, in very publicly negotiating this oil agreement with Iran, Russia is sending a message to the Obama administration that it had better keep Congress in check, and continue pushing for a final agreement, or risk finding itself isolated on the Iran issue much as it was during the early George W. Bush years. The irony of the Congressional effort to pass new sanctions on Iran, then, is that there is a very real chance that it could cause the existing sanctions regime to collapse. Instead of adding more sanctions on Iran, the bill could in fact free Iran from them.

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