The clock is ticking on the Iranian nuclear deal, but it may all be for naught. A meddling Congress aside, Iran appears to lack faith in US President Barack Obama’s ability to ease long-standing sanctions and is cutting what ties it can. According to Iran’s Tasnim News Agency, Iran no longer uses the US dollar in trade with foreign countries. Instead, Iran employs other currencies like the Chinese yuan, euro, Turkish lira, and Russian ruble, explained Deputy Head of the Central Bank of Iran Gholamali Kamyab.
In November, Iran and six world powers – the United States, Great Britain, China, France, Germany, and Russia – agreed on a six-month preemptive deal to restrict Iran’s nuclear program. Per the terms of the arrangement – which entered into effect on January 20th – Iran will limit its uranium enrichment to peaceful levels and reduce its stockpile of already enriched uranium. Of course, a long-term agreement has yet to be made, though Obama has pledged a peaceful solution – and more sanctions if Iran fails to cooperate.
For its part, the United States Congress does not plan to extend Iran the benefit of the doubt and prefers the threat of those sanctions now. The bipartisan duo of Republican Mark Kirk and Democrat Robert Menendez has authored a bill that would impose several escalating rounds of sanctions on Iran’s economy if they fail to agree to a long-term plan or break the stipulations of the current six-month deal. The bill is likely to hit the Senate floor in late February or early March, but may prove unnecessary if the talks stall sooner – and stall sooner they likely will.
You see 2014’s relative warming to the West has done little to mask Iran’s ambitions in the Middle East: the political upheaval in Yemen at the hands of Shia Houthi rebels has officials in the US and Saudi Arabia crying foul; a recent Israeli drone strike exposed, perhaps unwittingly, Iranian involvement in the hotly contested Golan Heights; and Iran’s support of the Assad regime continues to undermine the US’ position in Syria. While hampered by low oil prices, it’s a foreign policy agenda that is unlikely to change regardless of any nuclear ruling. Change is key here, and it’s not coming from Congress or Israeli Prime Minister Benjamin Netanyahu either. Such is the frivolity of this multi-party relationship.
Iran’s de-dollarization – which was not entirely unexpected – isn’t a world changer, but it’s certainly not the showing of faith that Obama would like to see as the negotiations enter their most critical stage. Still, the decision is more indicative of Iran’s dire straits (read: liquidity) than any collapse of the US financial system – even if it harkens to a larger movement to dethrone the dollar as the global reserve currency.
Since the economic sanctions entered into effect, Iranian oil production has fallen more than 30 percent to just 2.7 million barrels per day. Their voice has gone unheard among OPEC peers and Oil Minister Bijan Zanganeh believes OPEC production will remain steady in 2015 – a decision that has created sizeable tension with regional powers Saudi Arabia and Kuwait. Government spending is another issue however, as estimates suggest the Iranian budget breaks even only at prices above $130 per barrel. Several government projects will have to be halted once Iran’s calendar year begins on March 21.
Marginal help is on the way via Russia, who is developing an oil-for-goods program in addition to its work expanding nuclear power in Iran. But, off the dollar and a step backward, Iran appears to be hedging against a more cooperative future with the West.
First published at www.oilprice.com