By Irina Slav
“This is unproductive, this is wrong,” Russia’s Energy Minister Alexander Novak recently said about the U.S. sanctions on Iran, indicating that Moscow will continue to back its ally in the Middle East despite its newly forged relations with Saudi Arabia.
Speaking to CNBC last week, Novak said, “It is better to continue working in the market, Iran being just another exporter that provides stable supplies to the market. It is one of the richest in resources and has a solid standing in terms of its energy capability both in the OPEC, and in the energy markets as a whole.”
Analysts have warned that the U.S. sanctions could cut Iran’s crude oil production and exports by as much as 1 million bpd or even more, which will certainly have a bullish effect on prices whatever countermeasures are taken by OPEC or the United States itself, including the November sale of 11 million barrels of crude from the Strategic Petroleum Reserve.
True to his laconic self, Novak was wary of making any specific forecasts in this respect, however. “I think there will be consequences, I am sure, but we could only comment once they are in place,” Russia’s top energy dog said, adding “We’ll see what happens” with regard to companies operating in Iran and countries doing business with it.
The Iran sanctions have had an interesting effect on regional and global geopolitics. Russia and Iran are close allies, but Russia also recently opened up to Saudi Arabian investments. At the same time, U.S. Congress is preparing more sanctions against Moscow, but Washington needs Russian oil to help offset the effect of the Iran sanctions. To make things even more interesting, Tehran itself is juggling between its outrage at other producers—such as its friend Russia—ready to step in to pump more oil and earn more money on the back of lower Iranian supply, and its need to keep on good terms with its allies.
In a plot fit for an award-winning drama series, last week U.S. Secretary of Energy Rick Perry traveled to Moscow to discuss energy topics with Novak. Although no details concerning oil markets were disclosed, these were bound to have been discussed: Perry praised Russia for its readiness to keep oil supply stable just as he warned Moscow to “stop using energy as a weapon.”
In a no less charming puzzle of mixed signals, earlier this week Iran’s OPEC governor accused its friend Russia and foe Saudi Arabia of stealing its market share and enjoying higher oil revenues at Tehran’s expense. A day later, Foreign Ministry spokesman Bahram Quasemi dismissed “media reports” containing these accusations, saying, “We do not agree with some reports of media.”
Everyone involved in this geopolitical dance seems to be walking a thin line between its interests and those of other stakeholders that are at odds with its own. What the next steps of the dance will be remains to be seen, as Novak would say. Yet it bears remembering that in such a complex dance there is a constant risk of any one of the dancers stepping on someone else’s toes, the consequences of which could swing oil markets in any direction.
By Irina Slav for Oilprice.com