x Abu Dhabi, UAESaturday 29 July 2017

New president in Iran offers chance to alter energy politics

Hassan Rowhani's win in Iran confounds predictions that this was not an election, but selection by the supreme leader, Ali Khamenei, from a stable of uninspiring conservatives.

A supporter of the newly elected Iranian president Hassan Rowhani holds a poster after his victory in Tehran. Abedin Taherkenareh / EPA
A supporter of the newly elected Iranian president Hassan Rowhani holds a poster after his victory in Tehran. Abedin Taherkenareh / EPA
Iran's presidential elections almost invariably spring a surprise, and each new president has heralded a sharp turn in the country's direction - post-war economic recovery under Akbar Hashemi Rafsanjani in 1989, social liberalisation after Mohammad Khatami's 1997 upset, hardline defiance and populism with Mahmoud Ahmadinejad in 2005 and mass protests against his allegedly fraudulent re-election in 2009.
Just as inevitably from this founding member of Opec - and now the world's largest gas reserves holder - these changes ripple out into world energy markets. Sanctions on Iran have created space for Iraqi expansion and United States shale oil, sparing Saudi Arabia and Qatar some hard choices.
Now Hassan Rowhani's win confounds predictions that this was not an election, but selection by the supreme leader, Ali Khamenei, from a stable of uninspiring conservatives. Rather than a radical reformist - who would never have passed the vetting process - Mr Rowhani appears a well-educated, likeable pragmatist, who is also a tough negotiator and nationalist.
Iran is far from a democracy, but it is not North Korea or Bashar Al Assad's Syria either. The president, though not the final decision-maker, can exert genuine power, change the tone of international discussions and push the boundaries of domestic debate.
The electoral failure of Mr Khamenei's closest confidant, the nuclear negotiator Saeed Jalili - barely scraping third place with just 11 per cent - repudiates the regime's uncompromising international stance. As the Iranian analyst Karim Sadjadpour quoted a prominent Tehran businessman as saying: "His entire resume consists of showing up at a few negotiations and saying no".
The supreme leader remains the arbiter of any nuclear deal. Will Mr Rowhani merely present a more friendly face and better economic management than the rabble-rousing Mr Ahmadinejad, giving cover for continued nuclear work while sanctions erode? Or does his election open up the chance of a genuine deal? But at least the prospect of war and oil market chaos has been pushed back.
The United States has its own hardliners, and the confusing thicket of American, European and international sanctions will not be easy to untangle. Some congressional measures are tied to human-rights issues that go well beyond the nuclear file. And it needed intense diplomacy and pressure to introduce the most stringent multinational restrictions - the US will fear they could not easily be reinstated, were a deal with Iran to stall.
Now, negotiating an end to the most severe sanctions on oil sales, insurance, shipping and financial transactions could release up to a million barrels per day (bpd). If Saudi Arabia alone had to absorb that cut, its production would fall to barely 8 million bpd, and prices would still drop as risk perceptions ease.
Opportunities have been missed before to turn energy cooperation into wider detente. In 1995, Bill Clinton vetoed a contract for the US oil company Conoco to develop Iran's Sirri fields, just over the maritime border from Dubai.
Lack of competition within Opec was the key contributor to the massive run-up in oil prices from 2000 onwards. With the US now acting as though it were already "energy independent", the rest of world remains uncomfortably dependent on Saudi Arabia. Iran, which overtook Russia in gas reserves in BP's latest annual update, could also counter Vladimir Putin's use of energy as a political tool.
In the longer term, all consumers benefit from a more abundant and diverse energy supply. Even if the US feels itself invulnerable, its allies in Europe and East Asia are not.
It is far too early to know whether a deal is achievable this time. But both sides have to be prepared to take any opportunity.
Energy should stop being a tool for confrontation on one side and coercion on the other. Instead, Iran's oil should benefit its long-suffering voters - who have made the best of the choices they were given.
 
Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon