18 May 2019 - 13:21
  • News Code: 289205
Iran Oil Sanctions & Russia; Propaganda & Realities

The US policy of exerting maximum pressure on Iran for the alleged goal of bringing the country’s oil exports to zero has sent shockwaves all across world markets. In the meantime, one may wonder which nations are benefiting from this policy by substituting Iran in the market.

A number of countries may be on the list, but Russia may be the most significant one to be examined. Apparently, Iran and Russia may have warm ties and Moscow is critical of US sanctions against Iran. However, some analysts say Russia would be a major beneficiary of US oil sanctions on Iran, and hopes to supply sufficient oil on the market to fill the void that would be left by Iran.

Given the significance of this issue in the global energy markets, as well as in Iran-Russia ties, this article reviews Moscow’s oil policy, particularly as far as Iran is concerned.

Propaganda and Realities

International media present the following reasons to explain why Russia would benefit from the latest oil sanctions imposed on Iran.

First, the Russians have long ruled out any decline in oil production, thereby raising speculation about a plan to supplant Iran in the oil market.

Second, Russia’s policy of oil output hike coincides with US President Donald Trump’s toughening of oil sanctions on Iran and Saudi Arabia’s promise to produce more oil. That is why speculation is rife about Russia-Saudi alliance in favor of the US against Iran.

However, a precise review of Russia’s oil policy and Russia’s position in the global markets cast doubt on such speculation. When Russia joined the Organization of the Petroleum Exporting Countries (OPEC) in reducing oil output, the idea was to help bring oil prices back to their realistic levels. Therefore, when oil prices increased in the global markets the Russians no longer saw any need to pursue this policy. Therefore, leading Russian oil companies started talking about the necessity of oil output hike.

And the coincidence of Trump’s call for Saudi Arabia to politicize the oil market with Russia’s planned oil production hike would not necessarily mean Moscow working in league with Washington and Riyadh.

In fact, the Russians are following the market logic in oil production and supply. That does not imply Russia being in line with Saudi Arabia and the US against Iran.

Furthermore, Russia thinks differently from the US and Saudi Arabia about Iran. Moscow has always favored Iran’s sustained oil exports.

Had Russia been willing to ratchet up pressure on Iran’s oil sector, it would not have come out in support of oil production freeze in the latest OPEC meeting. Therefore, Russia’s energy policy is not based on cooperation with Saudi Arabia or following the US. Rather, Russia is pursuing its own interests in the oil sector. A review of Russia’s oil industry conditions shows that this country has, over the past ten years, been following up on increased production due to the startup of new fields and use of modern technologies.

The speculation that the Russians are increasing their oil production in an attempt to take over Iran’s place in international markets does not sound correct for the following reasons:

First, destinations for the Iranian and Russian oil are different. The main buyers of Russia’s oil are European nations and China, while Iran is selling oil mainly to China, India, South Korea and Japan. Most customers of Iran’s oil do not buy oil from Russia; therefore, they cannot shift from Iran to Russia to supply their needs.

Second, history shows that during the previous round of sanctions when Saudi Arabia, the United Arab Emirates, Kuwait and Qatar supplanted Iran in the oil market they did not benefit from the void left by Iran in the global markets.

Perspective

US sanctions may partly disturb Iran’s oil exports and drive prices high. That may sound good for Russia in the beginning, but Moscow never supports any unbridled price hikes. If oil prices keep rising without being under control that would make shale oil production and exploration economical and the shale-rich US would grow into a major oil producer. Therefore, Russia’s oil policy relies on striking a balance into the oil market and setting balanced prices to serve the interests of producers while preventing shale producers from becoming powerful.

For this reason, the Russians have been critical in unilateral US sanctions against Tehran and referred to Iran’s oil as a major balancing factor in the global markets. Over recent years, Moscow has followed up on oil production hike in a bid to cover its domestic costs and serve its own economy. It shows that Russia’s policy of increased oil production would be in favor of national interests and a domestic issue rather than being against Iran or in the US and Saudi interests.

Studying the conditions prevailing Iran-Russia relations and Moscow’s energy policy indicate that despite all propaganda raised so far, the two countries have no discrepancies on the issue of oil. Linking Russia’s oil policy to Iran does not match realities on the ground and is mere propaganda campaign aimed at harming Tehran-Moscow ties. Amid US sanctions, Tehran and Moscow can make joint investments in oil projects and resume their oil barter trading system.

by 

Shuaib Bahman

Courtesy of Iran Petroleum

News Code 289205

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