Monthly Insights September 2022

“The enemy of my enemy…

As the saying goes « the enemy of my enemy is my friend », which might be accurate in many aspects of life, but in geopolitical terms, the word friend should probably be replaced by ally, or in some cases, temporary allies.

The war in Ukraine that started slightly more than 6 months ago, has reshuffled, on many levels, the notion of what is acceptable, what is not, and what realpolitik (a system or principles based on practical rather than moral) allows governments and world leaders to do in an ever changing world, but even more so during the trouble times that we are experiencing right now and the very volatile environment that resulted.

It may well be years until we understand the global effects of U.S.-led sanctions on Russia following its invasion of Ukraine, but some geopolitical realignments are already coming into view. Take Venezuela, a sanctions-destroyed U.S. adversary and a relative afterthought for the Biden administration, which is now getting a chance of ease its sanctions burden in return for pumping more of its oil. A U.S. delegation visited Venezuela’s capital, Caracas, less than a Month after the war in Ukraine started. During this trip, they discussed the possibility of boosting production as the Biden administration seeks to Moneyball the global oil market amid price spikes driven by uncertainty and new bans on Russian oil imports in the United States and elsewhere. If the release, following this trip, of two imprisoned Americans by Venezuela is any indication, the government of President Nicolas Maduro seems open to a deal.

U.S. urgency is partially driven by the relative cold shoulder it has received from its traditional Persian Gulf partners, with Saudi Arabia and the United Arab Emirates reportedly ignoring White House pleas to boost oil production to trim prices. UAE officials have since tried to soften the country’s position, but the Saudis remain happy to reap the benefits of high prices. But as Geoff Ramsey, the Venezuela director at the Washington Office on Latin America, explained that focusing only on oil misses the bigger picture. “If the Biden administration was solely interested in replacing Russian oil imports, they wouldn’t be talking to Maduro,” Ramsey said. “The Venezuelan oil industry is so dilapidated and so collapsed that we’re talking about a drop in the bucket.” Ramsey sees the offer of sanctions relief as a chance for U.S. officials to hit two birds with one stone: getting Venezuelan oil back on the market while also incentivizing the Maduro government to return to the negotiating table with the country’s opposition. As David Smilde wrote in Foreign Policy, U.S. outreach isn’t likely to peel Maduro away from Russian President Vladimir Putin, but it offers a chance to “shake up the tragic stalemate of Venezuelan politics., where an authoritarian government and an opposition movement led by former Popular Will party leader Juan Guaidó has lost its steam.” So far, the gambit appears to be working, with Venezuela’s government indicating that it was ready to kick-start the stalled opposition talks.

The challenge for the Biden administration now lies in keeping its focus on Venezuela for longer than the current energy crisis. “There’s a risk that if the U.S. only goes for the oil, they’ll blow a huge opportunity to advance a negotiated transition to democracy,” Ramsey said. The timing is especially critical for the country’s opposition, as they angle for a fair fight in the 2024 presidential contest. As the geopolitical deck continues to shift, the United States has another unorthodox ace in the hole, Iran, with a revived nuclear deal now seen as a sure way to speed its oil back onto the world market. That reality may in part explain why Russia has suddenly decided to stall efforts to complete the deal as it reaches the finish line.

The US administration is pushing to revive the JCPOA with Iran and has accelerated in the wake of the Russian military operation in Ukraine. As many reports have indicated, the ongoing talks in Vienna are very close to a successful outcome. As other reports have also indicated, the United States is also willing to lift sanctions on Iran, including removing the Revolutionary Guards’ designation as a terrorist group. For the Iranians, this news certainly sounds great after facing years of sanctions. But the key question here is: why is this happening at such a fast pace, especially after the Joe Biden administration refused, soon after coming into power only last year, to re-join the JCPOA and lift the Trump-era sanctions?

The pace of these talks and the concessions that the US is willing to concede are both tied to the overall strategy of scuttling the Russian economy by manipulating the global oil production and supply. Policy makers in the United States seem to have calculated that lifting economic and financial sanctions on Iran could allow Tehran to add its oil supplies to the global market. This could have two consequences. First, an increase in oil production would bring the soaring oil prices down. Higher oil prices in the United States and Europe have led to a market crisis. By controlling oil prices through increased global oil production, the United States and Europe seem to believe that they will be able to manage the fallout of the Russia-Ukraine crisis. Secondly, by increasing global oil production and bringing oil prices down, the United States thinks it can prevent the Russian economy from benefiting from the higher prices at a time when Russia is involved in an active military conflict. But, why is the United States courting Iran? The most important reason for the US willingness is its inability to coax key OPEC members, Saudi Arabia and the UAE, into breaking the OPEC Plus agreement (ie, OPEC and Russia pact) over the maximum level of oil production to increase global oil production to control the rising prices. As reports in the Western media have shown, Saudi and Emirati leaders declined calls from Joe Biden earlier in March to discuss the possibility of breaking the OPEC Plus pact. Both the Saudi and the Emirati leaders knew that breaking that pact during the Russian-Ukraine war would be tantamount to taking a position against Russia (as also China, Russia’s ‘no limits’ ally.) Their refusal, on the other hand, reflects the ongoing state of US ties with its traditional Middle Eastern ‘allies.’

Biden’s disaster in the Middle East is of his own making. As a candidate, President Biden left no doubt what he thought about how the United States should deal with Saudi Arabia. His plan, he said, was to make the Saudis “pay the price, and make them in fact the pariah that they are.” Mr. Biden was equally blunt about the Saudi royal family. There is “very little social redeeming value in the present government in Saudi Arabia,” he said. Now, as president, Mr. Biden must deal with that government, whether it has redeeming value or not. And he must navigate a series of campaign promises to cut off arms shipments and make public the American intelligence conclusions about the role of Mohammed bin Salman (MBS), the Saudi crown prince and the de facto leader of the country, in the killing of the dissident and journalist Jamal Khashoggi. The Biden administration also played the UAE around the F-35 deal for over a year, until the latter decided to stop talks and bought Rafal fighter jets from France. Facing this very complex situation, Biden sent his most trusted ally, Boris Johnson, to Riyadh to convince MBS to increase oil production. Johnson’s meeting with MBS in the second week of March was a failure. As reports show, he failed to convince MBS. There is, therefore, every reason for the US to court Iran, which is a lot more deeply aligned with Russia, and China, than Saudi Arabia and the United Arab Emirates. Will this venture to hurt the Russian economy succeed? It is highly unlikely. But the fact that Washington is nonetheless pursuing this path shows how important it has become for the West to manipulate the global oil market to Russia’s disadvantage. It is for the same reason that the US is willing to remove sanctions on Iran’s Revolutionary Guards – which are not, in any way, related to the nuclear deal itself – provided Iran publicly commits to scale its activity in the region (ie, Syria and beyond). Israel is, of course, not happy. But the United States is following a politics where immediate interest is supreme. The problem for the United States, however, lies in the fact that the Iranians are too well aware of the nature of the US geopolitics and the latent motivations of its willingness to make a rapprochement. The Iranians are unlikely to forget that the United States made a similar multi-party agreement in 2016, which the Trump administration broke soon after coming into power. While Iran will be happy to make a deal, and Russia, too, does not oppose it, or considers it a ‘threat’ to reintegrate its economy with the world, Tehran is also mindful of the fact Donald Trump is eyeing re-election. Even if Trump does not win, there is no guarantee that Joe Biden, or any next president, would not violate the deal. In fact, Iran has been demanding that JCPOA, or any new deal, needs to be ratified by the US Congress as a treaty to ensure that it is not thrown into the dustbin soon after. But, as it stands, Joe Biden, as Iran understands, doesn’t have the numbers, in particular, in the US senate, to have the agreement passed as a treaty by the US Congress. Therefore, Tehran understands that any deal with the US that is not a US Congress approved treaty will be a fragile deal, one the US can always reject in a situation where it does not need Iran. While a deal may still happen, whether it will help the US achieve its cardinal objective i.e., isolate and hurt Russia, remains unlikely. It will be months before Iran can pump enough oil. Also, reduced prices do not mean that the Russian economy will collapse. The recent trip of the US President to Saudi Arabia, has added another twist in an already complicated diplomatic relation. The sanctions against MBS, that appeared to begin in the very near future, have since been postponed after Biden recent “fist bump” with him in Riyadh (The Biden administration asked a US judge for a 60-day extension before it formally weighed in on whether Mohammed bin Salman, the Saudi crown prince, ought to be granted sovereign immunity in a case involving the murder of Washington Post columnist Jamal Khashoggi).

Where are we heading next is very hard to predict. It seems that during this very uncertain times on the global chessboard, new geopolitical alliances are discussed, some of them will probably gain traction and others will be abandoned along the way. Energy prices should remain well supported, as long as the global economy does not fall into recession, which might be another game changer for energy prices as well as supply and demand forces.

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