by Stephen Arbogast
With the U.S. Congress failing to disapprove the Iranian nuclear deal, it enters into force as a Presidential Executive Order. The deal is widely recognized to have flaws and weaknesses. In recognition of these facts, acknowledged supporters are now opining on how the U.S. should act to maximize prospects for Iran’s compliance. Quietly, some Republicans have also taken an interest in enforcing the Agreement rather than simply vacating it if they gain the Presidency. Both camps should look at the possibilities presented by oil diplomacy as offering the best means for encouraging Iranian compliance.
It has been widely reported that the nuclear accord provides uncomfortably wide latitude for Iran to cheat. Site inspections can be delayed and in certain instances, only carried out by the Iranians themselves. Ample opportunities to delay inspections and enforcement measures exist. Determinations of violations lie in the hands of a United Nations body subject to lobbying by member states and historically reluctant to simply declare plain violations of accords. The histories of countries like North Korea and Pakistan offer cause for fearing that proto-nuclear states will say anything, and then do what they need to do to secure nuclear weapons.
The accord’s defenders respond to these concerns in various ways. Some are rather limp – as in declaring that agreements always reflect compromises or “this is the best deal we could get.” Others suffer from a lack of credibility. Deal defenders have listed such measures as making intelligence activities on Iran’s sanitizing of sites or weaponization efforts a ‘top priority.’ Do they mean to imply this hasn’t been the case? Similarly, they call for keeping “all options on the table, including military action” to discourage Iran from pursuing nuclear weapons when limitations fall away at the deal’s end. This of course comes from the same deal architects who have signaled in dramatic fashion that they prefer an obviously flawed deal to having to enforce the current Nuclear Non-Proliferation Treaty with force if necessary. Indeed, the current deal was defended as the only alternative to ‘war.’
More substantively, the accord does provide for a mechanism of “snapback sanctions.” This “snapback” mechanism is interesting. A party to the accord that suspects cheating can go to the UN alleging violations. Iran is then asked to clarify the supposed violation. If the member alleging the violation then indicates that it is not satisfied with Iran’s response, a Security Council resolution reaffirming the termination of sanctions is deemed to be vetoed. This diplomatic “double negative” amounts to recreating a legal basis for the re-imposition of sanctions. Presumably, the sanctions regime would then “snapback” into place. Said differently, the power to reauthorize sanctions will be vested in any single permanent member of the UN Security Council. The U.S. by itself can trigger the snapback mechanism.
The mechanism is not bad for legally reauthorizing sanctions. However, actually re-imposing them in force will depend on the willingness of other states to take action. If they do not agree with the allegations of the complaining state, or simply do not feel that the violation warrants renewed sanctions, there is every risk that sanctions do not, in fact, snap back into place. Will, for example, France, Germany and China feel as strongly about the number of centrifuges still running or the pace of change at Iran’s heavy water reactor? That is anyone’s guess. Such has been the historic weakness of international sanctions regimes composed of sovereign states with diverse interests and views.
There is, however, one state that would not hesitate to re-impose severe sanctions on Iran at the first sign that it was violating the nuclear accords. That would be Saudi Arabia.
It may be decades before the details are known about the backdoor diplomacy between the U.S. and the Saudis. It is interesting however to note this coincidence – the nuclear accords were finalized in parallel with the Saudis deploying the ‘oil weapon’ in an atypical fashion – this time lowering, not raising prices. On the surface, all discussion has been about the Saudis protecting market share and damaging U.S. fracking. Less commented on has been the way in which it reinforced existing sanctions on Iran and assured an environment in which additional Iranian volumes brought to market might only exacerbate already-low oil prices.
Whatever else they were meant to accomplish, the Saudi tactics strengthened the U.S. hand at the bargaining table. Economic pressures on the Iranian state intensified. Time no longer worked in the Iranian negotiators favor. Whether this resulted in a sound deal is not the point. What is clear is that it helped enable concessions that brought forth a deal the Obama administration was willing to take and to take the heat for politically.
Now the question turns to how the Saudis can deploy their pricing leverage in favor of enforcing the deal that has been made. This is a different challenge. It will require a different management of Saudi supplies and influence within OPEC.
The opportunity now is for the Saudis to back off somewhat on all-out oil production. Within OPEC this can be presented as a gesture to stabilize the market and make room for more Iranian supplies It’s more strategic effect however would be to recreate Saudi leverage over oil prices and Iranian sales. While it may seem counter-intuitive, the fact is that currently the Saudis are largely “out of ammunition” as regards influencing the oil market. Backing off production would recreate Saudi capacity to increase output at a future time. This restored capacity can then be put at the service of punishing Iranian non-compliance. It would also act as a threat hung over Iranian heads that deal cheating will attract swift and severe consequences. Cashing in on any modest oil price recovery would also provide the Saudis with an ‘interim policy dividend.’
The Saudis qualify as exceptionally well-suited to sanction Iranian non-compliance. For one thing, a Saudi decision to act requires no cumbersome international diplomacy or coalition building. A Saudi production increase can come at any time. Thus, it can come in reaction to suspicious Iranian behavior or obstructionism rather than a proven violation. It can be quietly threatened during early stages of Iranian testing the deal’s boundaries. It can be applied with a vengeance if violations are identified by Western intelligence agencies but hotly denied by Tehran. Moreover, the Saudis are experienced with sophisticated means of targeting the customers of competitors they chose to move against. In the past, Saudi Aramco has offered customers “netback contracts” which guaranteed them profits if they would shift away from their current oil supplier. Similar tactics could be used to target the Iranian National Oil Company’s (INOC) customers in a scenario where enforcement actions were needed. INOC would then suffer immediate lost sales and would incur serious switching costs when seeking out new customers.
Finally, the Saudis can put pressure on Western oil service companies not to do business with INOC. A simple threat to bar Schlumberger or Halliburton from working with Saudi Aramco would give such firms serious pause before continuing to work for INOC. Again, this can be done at any time, and can be done informally without the need for Security Council resolutions or a consensus among the P5+1.
The Obama Administration has overridden private and public Saudi objections in forging ahead with the Iranian accord. With luck it has kept its back channels to Riyadh open as thoughts turn to enforcing a deal even the architects admit to be flawed. The U.S. can assist the Saudis to redeploy their oil weapons in several ways. The intelligence sharing, now touted by deal architects turned enforcers, should be generously shared with the Saudis. Quiet preparations to coordinate Saudi actions with U.S. steps to deploy the ‘snapback sanction’ mechanism are advisable. Welcome too would be Western government pressure on energy and technology firms not to rush back to Tehran until Iranian behavior under the deal can be gauged. Key European governments should be pressed to join this effort, quietly pressuring the Totals and Siemens of this world. These and similar measures would do much to allay fears that the Iran nuclear deal defenders are more interested in political optics than actually enforcing what they have brought into force. Serious preparations to enforce the accord would also go far towards encouraging Iran to respect the deal. That would be, after all, the best outcome.
With the U.S. Congress failing to disapprove the Iranian nuclear deal, it enters into force as a Presidential Executive Order. The deal is widely recognized to have flaws and weaknesses. In recognition of these facts, acknowledged supporters are now opining on how the U.S. should act to maximize prospects for Iran’s compliance. Quietly, some Republicans have also taken an interest in enforcing the Agreement rather than simply vacating it if they gain the Presidency. Both camps should look at the possibilities presented by oil diplomacy as offering the best means for encouraging Iranian compliance.
It has been widely reported that the nuclear accord provides uncomfortably wide latitude for Iran to cheat. Site inspections can be delayed and in certain instances, only carried out by the Iranians themselves. Ample opportunities to delay inspections and enforcement measures exist. Determinations of violations lie in the hands of a United Nations body subject to lobbying by member states and historically reluctant to simply declare plain violations of accords. The histories of countries like North Korea and Pakistan offer cause for fearing that proto-nuclear states will say anything, and then do what they need to do to secure nuclear weapons.
The accord’s defenders respond to these concerns in various ways. Some are rather limp – as in declaring that agreements always reflect compromises or “this is the best deal we could get.” Others suffer from a lack of credibility. Deal defenders have listed such measures as making intelligence activities on Iran’s sanitizing of sites or weaponization efforts a ‘top priority.’ Do they mean to imply this hasn’t been the case? Similarly, they call for keeping “all options on the table, including military action” to discourage Iran from pursuing nuclear weapons when limitations fall away at the deal’s end. This of course comes from the same deal architects who have signaled in dramatic fashion that they prefer an obviously flawed deal to having to enforce the current Nuclear Non-Proliferation Treaty with force if necessary. Indeed, the current deal was defended as the only alternative to ‘war.’
More substantively, the accord does provide for a mechanism of “snapback sanctions.” This “snapback” mechanism is interesting. A party to the accord that suspects cheating can go to the UN alleging violations. Iran is then asked to clarify the supposed violation. If the member alleging the violation then indicates that it is not satisfied with Iran’s response, a Security Council resolution reaffirming the termination of sanctions is deemed to be vetoed. This diplomatic “double negative” amounts to recreating a legal basis for the re-imposition of sanctions. Presumably, the sanctions regime would then “snapback” into place. Said differently, the power to reauthorize sanctions will be vested in any single permanent member of the UN Security Council. The U.S. by itself can trigger the snapback mechanism.
The mechanism is not bad for legally reauthorizing sanctions. However, actually re-imposing them in force will depend on the willingness of other states to take action. If they do not agree with the allegations of the complaining state, or simply do not feel that the violation warrants renewed sanctions, there is every risk that sanctions do not, in fact, snap back into place. Will, for example, France, Germany and China feel as strongly about the number of centrifuges still running or the pace of change at Iran’s heavy water reactor? That is anyone’s guess. Such has been the historic weakness of international sanctions regimes composed of sovereign states with diverse interests and views.
There is, however, one state that would not hesitate to re-impose severe sanctions on Iran at the first sign that it was violating the nuclear accords. That would be Saudi Arabia.
It may be decades before the details are known about the backdoor diplomacy between the U.S. and the Saudis. It is interesting however to note this coincidence – the nuclear accords were finalized in parallel with the Saudis deploying the ‘oil weapon’ in an atypical fashion – this time lowering, not raising prices. On the surface, all discussion has been about the Saudis protecting market share and damaging U.S. fracking. Less commented on has been the way in which it reinforced existing sanctions on Iran and assured an environment in which additional Iranian volumes brought to market might only exacerbate already-low oil prices.
Whatever else they were meant to accomplish, the Saudi tactics strengthened the U.S. hand at the bargaining table. Economic pressures on the Iranian state intensified. Time no longer worked in the Iranian negotiators favor. Whether this resulted in a sound deal is not the point. What is clear is that it helped enable concessions that brought forth a deal the Obama administration was willing to take and to take the heat for politically.
Now the question turns to how the Saudis can deploy their pricing leverage in favor of enforcing the deal that has been made. This is a different challenge. It will require a different management of Saudi supplies and influence within OPEC.
The opportunity now is for the Saudis to back off somewhat on all-out oil production. Within OPEC this can be presented as a gesture to stabilize the market and make room for more Iranian supplies It’s more strategic effect however would be to recreate Saudi leverage over oil prices and Iranian sales. While it may seem counter-intuitive, the fact is that currently the Saudis are largely “out of ammunition” as regards influencing the oil market. Backing off production would recreate Saudi capacity to increase output at a future time. This restored capacity can then be put at the service of punishing Iranian non-compliance. It would also act as a threat hung over Iranian heads that deal cheating will attract swift and severe consequences. Cashing in on any modest oil price recovery would also provide the Saudis with an ‘interim policy dividend.’
The Saudis qualify as exceptionally well-suited to sanction Iranian non-compliance. For one thing, a Saudi decision to act requires no cumbersome international diplomacy or coalition building. A Saudi production increase can come at any time. Thus, it can come in reaction to suspicious Iranian behavior or obstructionism rather than a proven violation. It can be quietly threatened during early stages of Iranian testing the deal’s boundaries. It can be applied with a vengeance if violations are identified by Western intelligence agencies but hotly denied by Tehran. Moreover, the Saudis are experienced with sophisticated means of targeting the customers of competitors they chose to move against. In the past, Saudi Aramco has offered customers “netback contracts” which guaranteed them profits if they would shift away from their current oil supplier. Similar tactics could be used to target the Iranian National Oil Company’s (INOC) customers in a scenario where enforcement actions were needed. INOC would then suffer immediate lost sales and would incur serious switching costs when seeking out new customers.
Finally, the Saudis can put pressure on Western oil service companies not to do business with INOC. A simple threat to bar Schlumberger or Halliburton from working with Saudi Aramco would give such firms serious pause before continuing to work for INOC. Again, this can be done at any time, and can be done informally without the need for Security Council resolutions or a consensus among the P5+1.
The Obama Administration has overridden private and public Saudi objections in forging ahead with the Iranian accord. With luck it has kept its back channels to Riyadh open as thoughts turn to enforcing a deal even the architects admit to be flawed. The U.S. can assist the Saudis to redeploy their oil weapons in several ways. The intelligence sharing, now touted by deal architects turned enforcers, should be generously shared with the Saudis. Quiet preparations to coordinate Saudi actions with U.S. steps to deploy the ‘snapback sanction’ mechanism are advisable. Welcome too would be Western government pressure on energy and technology firms not to rush back to Tehran until Iranian behavior under the deal can be gauged. Key European governments should be pressed to join this effort, quietly pressuring the Totals and Siemens of this world. These and similar measures would do much to allay fears that the Iran nuclear deal defenders are more interested in political optics than actually enforcing what they have brought into force. Serious preparations to enforce the accord would also go far towards encouraging Iran to respect the deal. That would be, after all, the best outcome.