The U.S. President Donald Trump asked Saudi King Salman to increase oil production by two million barrels, in order to reduce oil prices. Trump’s objective is to slash Iranian oil revenues to zero. Teheran and Riyadh had held a November 2016 OPEC agreement, decreasing production from 33.2 million to 32.5 million barrels a month. A unilateral increase in Saudi production and the new U.S. sanctions expected for November, after Trump’s decision to de-certify Iran’s compliance with the Vienna treaty, could have a significant impact on Iran’s economy.
Rouhani in Europe
The agreement on Iran’s nuclear (Joint Comprehensive Plan of Action – JPCOA) had been discussed in Geneva and Lausanne, and signed in Vienna in July 2015. This is why, symbolically, Hassan Rouhani’s journey to Europe started from Switzerland. The Iranian President visited the Old Continent to try to keep the Vienna agreement on Iran’s nuclear capabilities. “It would make no sense that Iran could not export oil while the other countries in the region can. If it does happen, there will be consequences” was the early comment from Rouhani in response to Trump’s statements on Saudi oil production.
The first stop of Rouhani’s European trip, in Austria, coincided with the news that Iranian diplomats with Belgian passports had been arrested in Germany for taking part in a plot to hit Iranian politicians exiled in France. Bahram Qassemi, spokesperson from the Foreign Ministry of Iran, denied the allegation. “This is an attempt to hurt relations between Iran and Europe at a crucial time”, Qassemi stated. The EU4 Group (Germany, France, UK and Italy) is working on keeping the Vienna agreement alive. The High Representative for the EU’s Foreign Policy, Federica Mogherini, also expressed her wish for Europe to maintain the Vienna agreement. However, there are two unknowns currently weighing on the deal. On one hand, the doubts expressed by the French, who had supported a review of the agreement, like the USA. On the other, the possibility that EU companies that continue to do business with Iran will be hit by secondary US sanctions.
The Iranian Foreign Minister and key figure in the Vienna agreement, Javad Zarif, also stated that discussions in Europe had been “constructive” and showed the desire to keep to the agreement.
The Republican administration aims to lessen the role of Iran in the Middle East. Brian Hook, from the Department of State, confirmed that Washington’s goal is to “increase pressure on the Iranian regime by reducing its oil revenues to zero”. Trump justified his request to increase Saudi oil production after the protests taking place in Iran and Venezuela in the last few months.
Oil prices have increased in recent weeks, reaching 80 dollars a barrel. The new US sanctions against Teheran, expected for the next few weeks, are also weighing on the increase.
The Saudi press confirmed that a call had taken place between Trump and Salman. The press note informs that the two leaders discussed the need to “preserve the stability of the oil markets”. However, it has not been confirmed whether the Saudi Authorities will increase oil production, by how much and in what time frame.
And if that was not enough, the US Navy announced that they would favour using the Hormouz Strait, after the Iranian Pasdaran announced their intention to block foreign oil tankers, to contrast US sanctions.
High inflation sparked new protests among traders in Teheran’s bazars. Lower oil revenues resulting from increased Saudi production could really bring Iran’s economy to its knees. The European Union remains strongly committed to comply with the Vienna agreement, despite the USA defection, as confirmed by EU leaders during Rouhani’s visit to Austria and Switzerland.