Tag: Libya
Reform, not revolution
On Friday, the Middle East Institute and Johns Hopkins’ School of Advanced International Studies (SAIS) hosted Tarek Masoud, the Sultan of Oman Associate Professor of International Relations at Harvard’s Kennedy School of Government, to discuss a new book he co-authored, The Arab Spring: Pathways of Repression and Reform. I. William Zartman, SAIS Professor Emeritus, moderated the discussion. Masoud concentrated on deriving policy implications for the US from his structural analysis of why some Arabic-speaking Muslim-majority countries experienced revolts in 2011, why some regimes were able to rebuff protests, and why the results of revolts have been dismal, with the tentative exception of Tunisia.
The talk comes at a fortuitous moment, as the Nobel Peace Prize winner was just announced on Friday as the Tunisian Quartet, which contributed vitally to achieving democratic progress and stability since the mass mobilization that sparked the so-called Arab Spring and led to the departure of Tunisia’s autocrat, President Ben Ali. But personality is the least of it. Masoud and his co-authors take the position in their book that the Arab Spring was “a drama whose script was written long before its dramatis personae took the stage.” That is, there are deeply entrenched structural causes that determined the success or failure of Arab Spring movements.
Masoud suggested five policy implications.
First is that the absence of democracy in the Arab world is overdetermined; there are several decisive reasons why there hasn’t been a wave of democratic transitions. Many people have made a (questionable) cultural argument The most persuasive in Masoud‘s view is economic underdevelopment. Development generates competing political and social forces that are vital to preventing a single hegemonic power. This is one reason for Tunisia’s relative success, evidenced by the civil society-generated Quartet.
Second, Masoud views policies directed at establishing democracy as wrongheaded. What the Arab world needs are states that are durable, no matter what the regime. The effectiveness of many Arab states, which govern by fear and patronage, is rated low by the World Bank. Masoud highlighted the recent provenance of many of them, especially Yemen, as well as Muammar Qaddafi’s strikingly libertarian attitude towards governance, which led him to dismantle many Libyan state structures and atomize society. Tunisia in 2010 had a relatively effective government in 2010.
The third implilcation was simply stated: US military intervention often collapses the state, which is not useful.
Fourth: there is no pragmatic way forward without incorporating elements from the former regimes into future governments. Otherwise, there is the risk of alienating a significant cohort, which will seek to cause the new order from which it is excluded to collapse. Tunisia was advantaged in this respect as well. Its current president was associated with the previous regime.
In Syria, Masoud thought it will be necessary to reach some sort of compromise with Bashar al-Assad if a political solution is going to be achieved. Like other hereditary regimes, his is one in which the coercive and executive apparatus is tightly intermeshed. This has caused many of the monarchies to be more stable than Egypt or Libya, where there was a separation. But once armed conflict begins, this intermeshing may ensure that Assad will not stop fighting until there is no one left to fight.
The fifth and final implication is that the US should seriously consider working with Russia and Iran in Syria. Arguably, the three have more in common in this conflict than the US does with Saudi Arabia or Qatar. Saudi Arabia has made it its project to undermine many different states, through the funding and arming of radical Islamists – and it is exactly this type of radical Islamism that the US is seeking to combat on a global scale. Syria needs a strong state and a stable society, not increased weaponization and battlefields drawn on ideological lines.
Though Masoud expressed hope for the region, and a desire for justice for Syria, the study he has conducted in this book with his co-authors has been one focused on the structural constraints set in place decades ago that governed political action during the Arab Spring and continue to do so now. Exploring these constraints has led him to call for a conservative policy towards the Arab world, where the state is more likely to collapse towards a state of nature than transition to democracy. We need to build states and promote economic development in the hope of producing more lasting stability.
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Libya questions and answers
After yesterday’s talk, Daniel Serwer answered questions:
Q: Could the international community have taken any different action after the 2011 revolution that would have led to less conflict in the past few years?
A: Yes. For a year and a half or so, the situation in Libya was looking stable and positive. The militias were not called on to disarm and for a period played a role in maintaining security. However, eventually these militias began to align themselves with political forces, embroiling armed groups in political contests. We should have been prepared to provide assistance to disarming, demobilizing and reintegrating the militias.
The Europeans in particular should take responsibility, because of migration flows and because of oil and natural gas interests.
Q: What lessons could be learned from other conflicts – such as Iraq and Syria, but also the Balkans?
A: First and foremost we need to pay attention to local circumstances. Libya does not have the same sort of political and civil society infrastructure as the Balkans did, nor the same sectarian or tribal politics as Iraq, and so the lessons that may be drawn from either are few.
The Balkans had something the Middle East lacks entirely: a sense of direction, because the European Union has made it clear that all the Balkans countries can become members once they qualify. In the Middle East, people are fed up with secular dictatorships, but they have little idea what they want in their place. Islamists are filling that gap.
In Libya as in the Balkans (and Iraq and Afghanistan), decentralization of governing authority is likely to be an important part of the solution. Devolution of power enlarges the pie and helps to empower the population with authority over important aspects of their lives.
Q: Is a central government in Libya feasible, or does power have to be devolved to regions, or should we even contemplate breakup of the country?
A: Libya is the classic case of a country cobbled together by colonialists just before independence. But division of the country into two or more parts does not make much political or strategic sense at this juncture. Firstly, Libyans by and large view themselves as Libyans – it is one of the central components of professed identity, along with ‘Muslim’. There is no Libyan consensus that the country ought to be divided, even though there are competing, regionally-based political camps as well as a relatively small fringe that advocates independence for Cyrenaica in the east. Nor is there consensus on lines of division. The oil and gas reserves would be a major bone of contention in any attempt to divide the country – they are not evenly distributed. Libya could not be equitably or peacefully divided so long as participants disagreed as to allocation of hydrocarbon reserves and territorial claims.
Re-concentration of power in a central government in a former autocracy nevertheless will be no easy task. At this point Libyans are wary of recentralization and what it may entail. What most don’t want is a character like Khalifa Haftar to gain power and become another Qaddafi-esque strongman. The only scenario in which break-up would be feasible is if the majority of Libyans vote for it in a free and fair referendum, along pre-determined lines.
Q: How serious is the ISIS threat and what should we do about it?
A: Libya is an important beachhead for ISIS, ranked only after Syria and Iraq. Libya may be where ISIS retreats to if they lose ground in the Caliphate. The hinterlands and the south could be ideal ungoverned spaces for them. We know very little from open source material about their operations in Libya, but militarily they are still relatively weak. It is unclear why they have managed to take Sirte, Qaddafi’s home town. There has been a foiled rebellion there. Their rule seems to be similar to what they do in Syria and Iraq.
It will be important for the US to be involved in training Libyan counterterrorism units, building up a confident and unified military force under a respected and professional leadership.
The EU is thinking about a peacekeeping force of 5000, which doesn’t amount to much once you figure in a 24 hour day and tooth to tail ratio. That number would be able to do not much more than guard the government and foreign embassies. How do we expect the Libyans to feel about international peacekeepers who do no more than that? Ideally, Libya needs at least 15,000 peacekeepers to help maintain order in Tripoli and Benghazi, with logistical, intelligence and air support from NATO (especially the US).
Q: What about migration from Libya? Can we expect another big flow of refugees, similar to that from Syria?
A: The humanitarian crisis is of course urgent, but it is not the root of the problem. Refugees are a symptom of years of the political turmoil and conflict. Treating the symptoms won’t solve the problem. Libya and Syria both need political solutions.
Libya is not one of the more prominent sources for refugees – it is more of a conduit for sub-Saharan and East African nationals. Libyans, who are far fewer than Syrians in any event, are also better off, having enjoyed social payments from the state for many years as well as subsidized food commodities. Some Libyans have simply been able to drive to Tunisia and take a plane to Europe. Many have also gone to Cairo. Libya is not among the top 10 countries sending people to Europe. The predominant refugee and migrant concern remains Syrians, who mainly take Eastern Mediterranean routes, usually through Turkey.
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Libya needs all the help it can get
I had an opportunity today to talk with Hill people about Libya. Here is more or less what I said:
1. It’s a pleasure to be here to talk about Libya, which is today a country in big trouble but with some hope of finding its way out.
2. I confess to a lot of sympathy with the revolution that started in February 2011. I visited Benghazi and Tripoli that September and again in July 2012, to observe Libya’s first national elections in almost 50 years.
3. I found Libya the friendliest Arab country I have ever visited. Libyans knew who saved Benghazi and appreciated it. They ran good elections in 2012 and were looking forward to a free and democratic future.
4. But the revolution began crashing in the fall of 2012. Three years later, Benghazi is chaotic, tribal tensions are causing sporadic violence in the south and only recently has the west begun to stabilize, due to exhaustion of the Misratan and Zintani militias.
5. The country has two parliaments and two governments. The internationally recognized one is based in Tobruk and Bayda, with support from militias gathered together in a coalition called Dignity. The other is based in Tripoli, with support from militias in the Dawn coalition.
6. The big change since I wrote “Libya’s Escalating Civil War” in May is the heightened prospect of a UN-brokered political agreement, hopefully to be signed before the end of this month.
7. The agreement would create a Government of National Accord (GNA) with the Tobruk-based House of Representatives (HoR) elected in June 2014 as its legislature and an advisory State Council drawn mainly from Tripoli-based General National Congress (GNC).
8. This would be a power-sharing arrangement that attempts to merge Libya’s two governments into one. That is a classic way for diplomats to try to resolve civil wars.
9. But it is not entirely symmetrical. The Tripoli-based GNC would become advisory.
10. That’s the main sticking point. The proposed GNC amendments to the draft agreement would make it a second house of a bicameral parliament, with virtually equal powers to the HoR.
11. That may be a deal breaker, but there is another way out of the current impasse. The GNC may be able to make up some of what it loses institutionally in the now ongoing bargaining over deciding who sits where: the positions of prime minister, deputy prime ministers and the two ministers who will be part of the Presidency Council are particularly important.
12. That the bargaining has gotten to this stage—the musical chairs phase of ending a war (who will get a good seat and who will be left standing)—is a good sign, though no guarantee of success.
13. But even success will be no more than what the State Department people are referring to as a “70% solution.”
14. Khalifa Haftar, who commands what he calls the Libyan National Army on behalf of the “Dignity” coalition, is not likely to sign on. Nor will some hardliners associated with the “Dawn” coalition.
15. A 70% solution without international peacekeepers is a dicey proposition. Thirty per cent is a lot of potential spoilers.
16. The key issue for success will be security arrangements, especially in Tripoli. Those arrangements have not yet been made, though I understand some of the militias have begun talking informally about them.
17. Even in the best of all possible worlds, that will take time, as building the confidence of HoR members required to get them to move to Tripoli will not be easy.
18. What about international peacekeepers, at least to secure Tripoli? The Italians have indicated a willingness to lead such an effort, but it will be vital that the initiative come from a legitimate Libyan government only after Tripoli is stabilized and the HoR has moved there.
19. Arab participation, which won’t be easy or quick to arrange, is vital.
20. That will leave a perilous transition period. The Islamic State affiliate in Libya is second only to the Caliphate in Syria and Iraq in posing a threat to U.S. interests.
21. Though chased recently from Derna by other extremists, ISIS has established itself in centrally located Sirte, Qaddafi’s hometown. A rebellion there last month failed.
22. ISIS despises both Dawn and Dignity. It will try to destabilize a Government of National Accord.
23. So whatever forces back the GNA will need to be prepared to fight ISIS, in addition to other spoilers who refuse to acknowledge its authority.
24. What will the U.S. role be if the 70% solution goes forward?
25. First Washington has to be prepared to press the parties in Libya to adhere to the UN-brokered agreement. This will likely include sanctioning recalcitrants. It also needs to include support for those who are prepared to support the peace process, whether nationally or locally. It would be particularly important if the Misratan and Zintani militias can be convinced to come to a truce.
26. Second, Washington needs to help ensure Libya’s neighbors back the 70% solution to the hilt. The Tunisians and Moroccans, who have hosted some of the negotiating sessions, are on board.
27. The big question mark is Cairo, which under President Sisi has in the past backed Dignity and in particular Haftar. I am told the Egyptians are ready to abandon that support.
28. Third, Washington should support any international peacekeeping mission with air and sea logistics, intelligence and air strikes.
29. Fourth, Washington will need to train Libyan forces, especially for counter-terrorism.
30. This is more controversial than it sounds, because a previous U.S.-supported effort to train a General Purpose Force (GPF) came a cropper several years ago due to misbehavior of the Libyans involved. Some refused to return to Libya. Others did worse.
31. CT training and assistance will have to occur in Libya. It will be expensive and dangerous. Congressional support for the effort will be vital. I suggest we prepare to spend as much as the $600 million we planned for the GPF, over three to five years. That will be a hard sell.
32. But we have to decide whether we are serious about defeating the Islamic State or not. A failed UN political agreement in Libya could open the door to ISIS, which is still relatively weak there.
33. We know however how quickly and suddenly ISIS can expand and take over territory.
34. Libya is an enormous country with a small population–only 6.4 million when everyone is at home, likely no more than 5 million or so today. Its hinterland would be ideal as an ISIS safe haven, giving it strategic depth as it loses territory in Iraq and Syria.
35. The Libyans deserve better, in particular if they sign on to the UN-brokered agreement. I hope we’ll be prepared to support their efforts.
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Peace picks August 24-28
1. Promoting Nuclear Safety Cooperation in Northeast Asia | Tuesday, August 25th | 12:00-1:30 | East-West Center | REGISTER TO ATTEND | China, Japan, and South Korea all have deep experience with nuclear energy and large commercial nuclear power sectors, and the use of nuclear power is expected to continue to expand, mostly driven by growth in China. There have been calls over the years to increase regional nuclear safety cooperation, and the need for such cooperation has been highlighted by the Fukushima accident in Japan, the fake parts’ certificates scandal in South Korea, and rapid reactor construction in China. The most recent proposal for strengthening regional nuclear safety cooperation came in South Korean President Park Geun-hye’s Northeast Asia Peace and Cooperation Initiative (NAPCI). NAPCI envisions addressing “soft” issues, including nuclear safety, in order to build deeper regional cooperation on “hard” security issues, similar to the integration process in Europe, and Park has specifically cited the European Atomic Energy Community (EURATOM) as a model for Northeast Asia. Yet, is EURATOM an appropriate model for Northeast Asia? Can NAPCI’s call for regional nuclear safety cooperation actually be realized, and what would effective cooperation look like? Strong, enduring commitment to nuclear safety cooperation by all regional actors will be necessary for NAPCI or any other initiative to succeed. This seminar will examine the current state of nuclear safety cooperation in Northeast Asia and offer a view to the future. Speaker: Dr. James E. Platte, Non-Resident Sasakawa Peace Foundation Fellow, Pacific Forum, CSIS.
2. Peace, Conflict, and the Scale of the Climate Risk Landscape | Tuesday, August 25th | 1:15-2:45 | Webinar Sponsored by the Wilson Center | REGISTER TO ATTEND | Climate risks have the potential to affect every natural and social system, to harm populations, disrupt economic systems, and contribute directly or indirectly to conflicts within and across jurisdictional borders. The Global Climate Security webinar series convenes global thought leaders to seek pathways to improve responses to destabilizing climate risks. The opening webinar will examine the security implications of climate risk and will provide a context for the subsequent place-based and sector-based webinars. This session will address climate risk and security on all fronts from the risk assessment perspective (impacts on governance, economic vitality, national, regional and international security) to potential solutions (risk management, policy, and technical). Participants will hear from experts from the national intelligence and climate impact communities who will address the scale of the risks. The first webinar will set up the remaining webinars, which in turn will address how to respond in four sectors (national & subnational, industry, defense and global policy) based on risk assessment and responses commensurate with the risk. The intent is to examine steps to bridge the risk – policy analysis gap. Speakers include: Joshua Busby, Assistant Professor of Public Affairs, Lyndon B. Johnson School of Public Affairs, University of Texas, Austin Marc Levy, Deputy Director, Center for International Earth Science Information Network, Earth Institute, Columbia University, Mathew J. Burrows, Director, Strategic Foresight Initiative, Brent Scowcroft Center on International Security, Atlantic Council, and Nadya T. Bliss, Director, Global Security Initiative, Arizona State University.
3. Iran: What Next After the Nuclear Deal? | Tuesday, August 25th | 6:30-8:30 | Located at OpenGov Hub and sponsored by PS21 | REGISTER TO ATTEND | After last month’s Iran nuclear deal, what next for the Islamic Republic? Will the easing of sanctions bring it more into the diplomatic and international mainstream? Or will the new economic growth create a more assertive Iran that further antagonizes the rest of the region? What will the domestic consequences be of Tehran’s new openness to the outside world? And what, if anything, will happen to the nuclear program? Panelists include: Ariane Tabatabai, Visiting Assistant Professor, Security Studies Program, Georgetown University, Kelsey Davenport, Director for Nonproliferation Policy, Arms Control Association, Reza Akbari, Senior Program Officer, Institute for War and Peace Reporting, and Sam Cutler, Policy Advisor, Ferrari & Associates, P.C. Moderator: Negar Razavi, PhD candidate, University of Pennsylvania and Global Fellow, PS21.
4. International Youth Month Breakfast Briefing: “Young Democracy: Engagement as a Deterrent to Radicalization” | Wednesday, August 26th | 9:30 – 11:00 | Located at the Rayburn House Office Building and hosted by IFES | REGISTER TO ATTEND | Join IFES for a breakfast briefing on how involving young people in constructive democratic processes can serve as a potential deterrent to radicalization. This panel will discuss engagement both before and after the age of enfranchisement, with a special emphasis on the political participation of young women and girls. Discussants will offer examples of programmatic work from multiple regions and countries, including Bangladesh, Burundi, the Democratic Republic of Congo, Indonesia, Libya, Nepal, Syria and Yemen. This event will be co-hosted by the office of Congresswoman Sheila Jackson Lee (TX-18). Speakers include: Matthew Cohen, Program Officer, Africa, IFES, Jessica Huber, Senior Gender Specialist, IFES, Juliette Schmidt, Deputy Regional Director, Asia and the Pacific, IFES, and Ambar Zobairi, Deputy Regional Director, Middle East and North Africa. Moderated by Augusta Featherston, Youth Adviser, IFES.
5. The Economic Impact of Lifting Sanctions on Iran | Thursday, August 27th | 10:00-11:00 | Carnegie Endowment for International Peace | REGISTER TO ATTEND | A new World Bank report assesses that the removal of economic sanctions against Iran could significantly boost economic growth in Iran—including $15 billion in annual oil revenue—while potentially reducing global oil prices as much as 14 percent in the short run, depending on OPEC’s response, and opening up a significant market for exports. Drawing from the report’s systematic and comprehensive analysis, Shantayanan Devarajan will discuss the economic and geopolitical implications of Iran’s potential reentry into the global economy. Carnegie’s Uri Dadush will discuss the economic consequences and Karim Sadjadpour will moderate. Speakers include: Shantayanan Devarajan, chief economist, MENA region, World Bank and Uri Dadush, senior associate, Carnegie Endowment. Moderator, Karim Sadjadpour, senior associate, Middle East Program, Carnegie Endowment.
PC: Eddie Grove
6. The New Ice Curtain: Russia’s Strategic Reach to the Arctic | Thursday, August 27th | 10:00 – 11:30 | CSIS | REGISTRATION CLOSED- WATCH ONLINE | Please join us for the release and discussion of a new CSIS Europe Program report, The New Ice Curtain: Russia’s Strategic Reach to the Arctic, which examines Russia’s economic, energy, and security strategies and aspirations in the Arctic, and the evolution of the Kremlin’s Arctic policies over the past decade. On the eve of President Obama’s and Secretary of State John Kerry’s visit to Anchorage, Alaska where they will convene Arctic and non-Arctic leaders to discuss climate impact and resilience, and global leadership in the Arctic, it is a timely moment to better understand the
largest and most dynamic Arctic actor and to assess whether the Arctic will remain a cooperative region or succumb to geopolitical tensions. Report author Heather A. Conley and project consultant Dr. Marlène Laruelle will examine the significant changes in Russia’s Arctic policies and rhetoric – particularly since President Putin’s return to the Kremlin in 2012 – and offer their insights on Russia’s military posturing in the region, as well as how to develop new collaborative thinking to preserve and protect international Arctic cooperation. New York Times correspondent Steven Lee Myers, who has written about and traveled frequently to the Russian Arctic, will offer his reflections on the report and assess whether the
development of a 21st century “ice curtain” is realistic. The panelists will also preview the upcoming August 31st meeting in Alaska and assess the impact of the potential attendance of Russian Foreign Minister Sergey Lavrov on U.S.-Russian cooperation in the Arctic. Speakers include: Dr. Marlène Laruelle, Research Professor of International Affairs, George Washington University and Steven Lee Myers, Correspondent, The New York Times. Introduced and moderated by Heather A. Conley, Senior Vice President for Europe, Eurasia and the Arctic, CSIS Europe Program.
7. A Normal Nuclear Pakistan | Thursday, August 27th | 12:30-2:00 | Stimson | REGISTER TO ATTEND | A commercial pathway for Pakistan to join the mainstream in the global nuclear order is highly unlikely. Pakistan’s leaders must therefore consider nuclear weapon-related initiatives that could facilitate mainstreaming, while also strengthening nonproliferation norms, bolstering global disarmament hopes, and setting the bar higher for new entrants into the Nuclear Suppliers Group. This presentation will discuss a new report by the Stimson Center and the Carnegie Endowment for International Peace, “A Normal Nuclear Pakistan,” co-written by Toby Dalton (Co-Founder and Senior Associate, Stimson) and Michael Krepon (Co-Director of the Nuclear Policy Program, Carnegie Endowment for International Peace). The report takes a hard look at Pakistan’s nuclear weapon-related programs and its ambitions to be viewed as a normal state possessing advanced nuclear technologies.
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Trying to stay off the slippery slope
So now US government officials are denying any intention of creating protected areas in northern Syria. They just want to clear the Islamic State from a portion of the Turkish border.
This makes no sense. ISIS governs the territory in question at present. Something will replace it if ISIS is “cleared.” The Turks can be counted on to prevent Syrian Kurds from filling the vacuum. Washington and Ankara should both be worried about what else might.
One possibility is a return to the area of the Syrian government, whether in the guise of the now decimated Syrian Army, Alawite/Shia militias or Hizbollah. From the Turkish point of view, that would be a disaster, as it would significantly strengthen Ankara’s archenemy Bashar al Asad on its southern border and provide him with the ability to allow infiltration of Turkey by both jihadi and Kurdish terrorists.
Or, more likely, ISIS could return as soon as American and Turkish attention focus elsewhere. The notion that ISIS can be cleared permanently without somehow providing minimal state functions in any area is unconvincing. Turkey is talking about Syrian refugees returning to the cleared area. They won’t do that unless there is some semblance of law and order in the area.
The Americans may be leaving the tasks of “holding” and “building” to the Turks. That makes some sense, since Turkish national interests are directly engaged. But a Turkish occupation of any part of Syria would rouse nationalist sentiments to fever pitch and risk unifying Syrians against a Turkish incursion.
The Turks could try to work through the moderate Syrian opposition, which however is not strong in northern Syria. It would need substantial assistance from Turkey to take over security and governance there. It is not clear that Ankara is prepared to take on that role, but it may have to do so if it wants to keep the Kurds, the Syrian government and ISIS out of the area.
Why is the Obama administration leaving this vital issue of who would govern in a liberated area of northern Syria unresolved? It wants to avoid getting involved in another state-building effort in the Middle East, where such efforts have repeatedly failed.
I understand the impulse. But President Obama has already acknowledged that it was a mistake to leave Libya to its own devices after the NATO-led intervention collapsed the regime of Muammar Qaddafi. Libya is today in chaos. Breeding in that chaos are several jihadi groups, including some that identify with ISIS. It would be no less a mistake to clear the Islamic State from a portion of northern Syria and leave who will then govern the liberated territory to chance.
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Iran’s return to oil markets
Thursday, the Wilson Center focused on “Middle East Energy: Beyond an Iran Nuclear Deal,” which explored the oil and gas sectors’ future given Iran’s possible sanctions relief. Speakers included David Goldwyn, President of Goldwyn Global Strategies LLC, David Gordon, Senior Advisor of the Eurasia Group, Julia Nanay, Principal at Energy Ventures LLC and Jean-Francois Seznec, a non-resident Senior Fellow at the Atlantic Council. The event was moderated by Jan H. Kalicki, Wilson Center Public Policy Fellow and Energy Lead.
Gordon talked about potential energy market responses with the entry of Libya and Iran into the market. Libya’s entry last year put downward pressure on oil prices. The country is currently in the process of building up its export volumes, but the political and security fragility remains. Iran’s market impact is also uncertain. There may be competition between Iran and the Gulf Cooperation Council (GCC) states for market share. Iran’s success is far from assured. The current uncertainty ends up being bearish for energy markets, which will lead to the strengthening of the US dollar. Only the risk of supply disruption and failure of nuclear talks could be bullish for markets.
If sanctions are lifted, Nanay thinks Iran’s key goal is to become the second largest producer in OPEC. Saudi Arabia’s oil production amounts to 10.3 million barrels a day, while Iran is at 2.8 million barrels a day. Iraq’s is a bit higher. Iran might bring back 700-800,000 barrels a day, with 20 million barrels released quickly and efficiently. Sanctions have also prevented oil revenues from flowing back to Iran. There may be as much as $100 billion that could be released quickly, possibly half from China. International oil companies (IOCs) also owe large sums to Iran.
Possible losers from sanctions relief are the Saudis, Russians, Nigerians and Kuwaitis. The Saudis and Russians have been able to capture some exports to China. Sanctions relief would decrease the market share of all oil exporting countries that have benefited from having Iran off the oil market.
Iran has several stalled projects with significant market potential in the oil and gas sectors. A South Pars project requires 24 phases to develop fully, of which 11 phases have already been done without sanctions removal. Iran is looking to complete more phases by next year. Iran has also planned three big Liquefied Natural Gas (LNG) projects. Iran can ship this LNG to Europe and supply its neighbors, such as Saudi Arabia and Kuwait, but politics may complicate partnerships. The only neighbor Iran has a good relationship with is Oman. An Iran-Oman gas pipeline is possible, but the countries may disagree on price.
Seznec disagreed with Nanay on Iran’s potential in the oil market. Iran will require technology and investment that would make it dependent on IOCs. Instead, Iran can emphasize natural gas, which both Iran and the Gulf states need. The GCC states—especially Saudi Arabia—could partner with Iran in the gas sector. The Saudis have the technology and money to help the Iranians redevelop their gas fields. The Kingdom is seeking to avoid overdependence on crude oil. Instead, it wants to add value by building capacity for refined products and chemicals. Their vision is eventually to get out selling crude and leave Iran and Iraq as the “third world countries” that produce raw materials.
Goldwyn commented on Iraq’s position in the oil market. He believes Iraq might increase production by completing the revamp of the Al Faw Peninsula, but that is an $8-10 billion dollar project.
On the Baghdad-Kurdistan Regional Government deal, Goldwyn pointed out two reasons for the unraveling:
- Baghdad hasn’t paid Kurdish forces what it owes.
- The Kurds are not exporting the agreed-upon average of 550,000 barrels per day.
If Iraq is unable to increase production much and Iran produces an additional 500-800,000 barrels a day, there is no need for OPEC quota renegotiation, Goldwyn said. There is room for rapprochement on economics between Iran and the Gulf states. But first there must be rapprochement on security. If Iran reduces its involvement in Yemen and Iraq, there is potential for détente with the Saudis, who would also have to do their part in reducing the flow of funds to Al Qaeda and ISIS. If both parties deliver, an economic deal is on the horizon. Otherwise, the current situation will continue, with the Saudis better financed and more competitive than any other player in the Gulf.
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