The story comes from The Clarion Project.
Iran Moves to Dominate OPEC, Scuttle U.S. Oil Boom
The Iranian regime is proceeding with a second leg of its energy strategy to immunize itself from international sanctions. It is conspiring with Iraq to undercut Saudi Arabia’s influence over the Organization of Petroleum Exporting Countries (OPEC).
The Iraqis are aiming to triple their oil production capacity by 2020, from 3 million barrels per day (BPD) to 9 million bpd. This is a major threat to Saudi Arabia, a rival of Iran. Saudi Arabia paved the way for sanctions against Iran by boosting its own output to keep down the price of oil. The Saudis produced 9.8 million BPD in December and have a capacity of 12.5 million.
The Iranians are hoping that a strengthened Iraq will allow its bloc to overtake Saudi Arabia as the main decider of OPEC policy. In addition, the two Shiite-led countries are trying to attract Western investments that will lure foreign countries towards Iran and away from the Saudis.
Russian company LukOil says the Iraqis will cause a “revolution” in the oil market. Billionaire and LukOil shareholder Leonid Fedun agrees, recalling that a “a top manager at a leading Western firm said the modern history of the oil business will be split into the pre-Iraq and post-Iraq periods.”
The good news for the West is that Iran and Iraq could potentially cause the cost of oil to fall, but that comes with a price. Iran’s grip on the world economy, in addition to the lucrative deals with Western businesses, will make future sanctions implementation dramatically more difficult. The world may not want Iran to have a nuclear bomb, but will it decide that confronting Iran is worth a sharp spike in oil prices?
Another objective of Iran’s oil strategy may be to slow down America’s own energy production. Christopher Helman of Forbes observes that Iran’s moves could “lead to the scuttling of the great U.S. oil boom” by reducing the incentive for domestic drilling.
“The concern for U.S. drillers is that successful Middle Eastern diplomacy could end up being the worst thing for their business. If crude oil benchmarks were to fall to $75 a barrel and stay there for a couple months, you’d see drilling rigs across Texas and North Dakota fall silent,” he writes.
The other leg of Iran’s energy strategy is to ally with Turkey in seducing Europe with natural gas.
Prime Minister Erdogan is moving quickly to repair Turkey's strained relations with Iran that are due to differences over Syria. He just returned from a trip to Iran, where he met with Supreme Leader Khamenei and President Rouhani and said Iran “feels like a second home.”
“Our relations with Turkey have entered a new phase,” said a spokesman for Iran’s Foreign Ministry.
Turkey imports natural gas and oil from Iran and wants to be a passageway for exports to Europe. The two countries announced they reached an agreement for Turkey to import more Iranian energy, but it has yet to be confirmed that Iran granted the Turks’ request for a discount on natural gas.
These deals are part of an overall strategy that was on display at the World Economic Forum in Davos. The Iranian regime is hoping to cloud the West’s judgment with economic incentives. The hope is that pressure from influential businesses and the desire for lower energy prices will build a shield from sanctions in the future.
The Iranian strategy isn’t unreasonable. The top issue on the minds of Americans, Europeans and Asians is not Iran's nuclear program — it’s the economy. And few factors affect the economy as much as energy prices.
The Iranians know this and are playing to win.