Implications of Nuclear Agreement With Iran

This afternoon, one of my correspondents asked me the following question:

What’s your put on the new Iranian agreement, can the weapon program be capped and verification assured?

Here was my response:

I am happy that there is an interim agreement. It indicates that some people are starting to recognize that Iran is probably telling the truth when it says that it wants to maintain the capability to enrich uranium to provide an independent capability to provide fuel for a growing domestic nuclear energy program. It will be a great benefit to all of us if tensions ease and Iran regains its ability to engage in international business, especially exporting oil and gas.

By my calculations, the world has been paying an Iranian sanctions premium of at least $15 per barrel of oil for at least the past six months and perhaps even the past year. That has resulted in enormous financial benefits for a few and an economy slowing cost for all of the rest of us. (As an example, the Iranian sanctions premium has provided an additional $120 million per day to Saudi Arabia, based on its recent export figure of 7.8 million barrels per day.)

Israel is disappointed with the deal, ostensibly for security reasons, but there are also underlying financial issues. The large gas fields recently discovered in the eastern Mediterranean will be a boon to the Israeli economy, but the boon will be smaller if the international sales price of the gas is lowered by competition from Iran’s massive resources.

I believe that the nuclear program that Saudi Arabia and Israel really fear is the Iranian nuclear energy program.

Iran, with its 70 million citizens demanding better living conditions, burns the equivalent of about a million barrels of oil per day in the form of internationally valuable hydrocarbons (oil and methane) to supply domestic electricity. If it continues to add to its nuclear energy capacity, it will free up supplies that it can sell in the world market. That increased supply will inevitably lead to lower prices as a result of the well understood relationship between supply and demand.

If Iran does not build its domestic nuclear energy capability, growth in domestic oil and gas demand might eventually result in it not being able to export any oil at all. There are good historical reasons why Iranian leaders believe that their country must have domestic nuclear fuel capability; the international market has not been a reliable supplier of any important products to Iran over the years.

http://oilprice.com/Geopolitics/Middle-East/Irans-Looming-Energy-Crisis.html

The often repeated charge that Iran has directly threatened the very existence of Israel is based, as I understand it, on a rather faulty translation of words that have been used in political speeches.

By way of backing up my interpretation of the recent agreement, here is an article I wrote a little more than 3 years ago in which Colin Powell recommends accepting Iran’s nuclear energy capability along with an inspection program to ensure that the program remains focused on energy, not weapons creation. As Reagan used to say, trust but verify.

Atomic Insights