The 5 Countries That Could Push Oil Prices Up

By Nick Cunningham - Oct 23, 2017,

Oil prices appear to be stuck in the $50s per barrel, but that doesn’t mean there aren’t serious supply risks to the market.

An unexpected disruption could occur at any moment, as has happened in the past, leading to a sudden and sharp jump in prices. Geopolitical tension has been largely irrelevant since the collapse of oil prices in 2014, but it’s making a return now that cracks have emerged in some key oil-producing nations. The threat of an outage will carry more weight as the oil market tightens.

"The 'Fragile Five' petrostates—Iran, Iraq, Libya, Nigeria and Venezuela—continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal," U.S. bank Citi said.

Indeed, five prominent oil-producing nations are beset with challenges, for varying reasons, all of which could spring a surprise on the oil market without any advanced notice.

Iraq. The most near-term supply risk comes from Iraq. The surprise seizure of Kirkuk’s oil fields by the Iraqi government has already disrupted some oil shipments. The Bai Hassan and Avana oil fields near Kirkuk remained shut as of October 19, keeping at least 275,000 bpd offline. The outages are expected to be temporary; a source told Reuters last week that they’re seeking certain equipment to bring the fields back online. An agent at the Turkish port of Ceyhan—the destination for Iraq’s northern oil exports—told Bloomberg that flows fell to 196,000 bpd as of October 19, implying an outage of about 400,000 bpd. Iraq represents the most obvious near-term threat to global supplies, but because the bulk of the country’s output is located in the south, far from the unrest, the potential outage is likely capped at 600,000 bpd, and would probably be temporary.

Iran. This one’s probably the biggest question mark on this list, and is in a much stronger position than its more fragile peers. The danger to Iran is a return of U.S. sanctions, which are by no means a given. Even then, it’s unclear if the U.S. has the ability to curtail Iranian oil exports. It might scare away new investment, but even U.S. Secretary of State Rex Tillerson went to lengths recently to assure European officials that it wouldn’t block business between European companies and Iran. Goldman Sachs estimates that in a relatively worst-case scenario of a return of U.S. sanctions, a few hundred thousand barrels of oil exports would be at risk—not the more than 1 mb/d of disrupted exports due to sanctions before the nuclear deal. At this point, though, potential outages are too hypothetical to be taken seriously. Iran probably won’t pose a supply risk to the market, at least not this year.

Libya. The North African OPEC member was exempted from the OPEC deal, and for much of the past year has represented a downside risk to oil prices, not an upside one. That is because it has nearly tripled its output from about 300,000 bpd in August 2016 up to about 850,000 bpd currently, down a bit from a recent peak at over 1 mb/d. But damage to some export terminals likely means that near-term production has a ceiling at about 1.25 mb/d, meaning Libya won’t be able to bring output back to pre-war levels of 1.6 mb/d. But because current output is now taken for granted and already baked into global pricing calculations, Libya now represents a supply risk to the market because an outage is entirely realistic due to ongoing instability. The country is nearing its ceiling for production, while there’s plenty of room for it to fall back.

Related: Can India Overtake China In The EV Revolution?

Nigeria. The story here is similar to Libya. It was also exempted from the cuts because violence and instability previously knocked a sizable portion of output offline. But Libya’s restoration of output coincided with a similar reduction in violence in the Niger Delta. A ceasefire brought calm for much of the past year, allowing production to rebound from a low point of 1.2 mb/d last year, back up to 1.8 mb/d currently. Potential for further output gains is probably limited, not least because the country promised to limit production when it hit 1.8 mb/d. Meanwhile, peace in the Niger Delta remains fragile, and reports that militants have grown frustrated with the pace of talks with the government raises concerns about a return to violence. The rebound in Nigerian production is not assured.

Venezuela. The unfolding implosion of Venezuela almost ensures that more of the country’s oil production will erode, perhaps at a quickening pace. As of September, Venezuela only produced 1.89 mb/d, down from 3.2 mb/d in the late 1990s, but also down from nearly 2.4 mb/d as recently as 2015. Without cash, state-owned PDVSA can’t invest in new production and can’t even invest in maintenance to keep existing production from falling. Reports have surfaced suggesting that even the oil that is produced is suffering from declining quality, as PDVSA doesn’t have the means to properly treat its heavy crude. Worse, with huge debt payments coming due in the next few weeks, a debt default is possible. All of this adds up to a further deterioration in the country’s oil output.

By Nick Cunningham for Oilprice.com

Special Report: Iran's Oil Smuggling Network in Iraq

Summary

After years of war-induced economic stagnation, Iraq is showing the potential to dramatically increase its capacity to export oil in anticipation of higher oil production. With much of this oil and infrastructure development taking place in Iraq's Shiite-concentrated south, the biggest external beneficiary of Iraq's increased oil output would be Iran. Through a web of alliances including Iraqi politicians, unions, oil syndicates and militias, Iran is already well-positioned to extract oil revenues from southern Iraq via informal channels. This allows Iran to draw from a large stash of resources to maintain its regional influence while insulating itself against an intensifying sanctions campaign targeting Iranian oil exports.

Analysis

Over the past couple of years, oil production in Iraq's Shiite-majority southern region has been steadily rising because of production in the Rumaila, West Qurna Stage 1 and Zubayr supergiant oil fields that were auctioned off to foreign companies in 2009. Sitting on 115 billion barrels of proven oil reserves, more than 80 percent of which is concentrated in the south, Iraq has the potential to rival Saudi Arabia's production rate of roughly 10 million barrels per day (bpd) within the decade.

Iran is especially interested in the prospect of increased oil production in southern Iraq. Tehran has built a complex oil smuggling network that allows it to bring in significant revenues from southern Iraq's oil production. These funds enable Iran to maintain its influence in the region while preparing to defend itself against more stringent sanctions against its oil exports.

Southern Iraq's Oil Expansion Plans

Most of Iraq's oil lies in large and shallow oil fields very close to the coast on transit lines that do not cross population centers. This makes the oil relatively easy and inexpensive to extract and thus highly profitable. But years of sanctions, war and insurgency have dilapidated the country's energy infrastructure. According to oil-pricing agency Platts, Iraqi oil production rose to an average 2.653 million bpd in 2011, a 12 percent increase from 2010's average of 2.364 million bpd. Iraqi Oil Ministry data indicates that the country has a production capacity of around 2.9 million bpd, with ongoing efforts to meet a production target of 3.4 million bpd by year's end. The problem is that Iraq has not completed the critical upgrades to its export and storage infrastructure necessary to cope with a significant rise in production. Southern Iraq's oil production is thus largely limited to what it can export, which is roughly 1.89 million bpd.

To alleviate this bottleneck, Iraq is planning an ambitious project to expand the export capacity of Basra's oil terminals to about 4.8 million bpd by 2014. Four single-point mooring facilities, each expected to add another 850,000-900,000 bpd in export capacity, are to be completed by 2014. The project has encountered repeated delays: An inauguration ceremony for the first terminal scheduled for Jan. 25 has been postponed for a third time, though a member of Iraq's southern export expansion team told Reuters that the terminal would be ready to receive crude vessels in February after pipeline connections and testing were completed. The second terminal is scheduled to be ready within six months, the third by the end of 2012 and the fourth by the end of 2013.

Iran's Stake in Iraq's Oil

Though it is unlikely that Iraq will be able to meet all its production targets and project deadlines, there is no doubt that it has a chance to significantly elevate its energy status in a relatively short time. Because much of this energy activity is taking place in Iraq's mostly Shiite-populated south, in close proximity to the Persian Gulf, the country most focused on Iraq's energy prospects is Iran.

When the United States completed its military withdrawal from Iraq at the end of 2011, it left the door open for Iran to consolidate its influence in an energy-rich country at the heart of the Arab world. The influence of Iran, a predominantly Shiite state itself, is most entrenched in Iraq's Shiite-majority south. Though many Shiite Iraqi politicians are opposed, Iran's geopolitical ambition is to make southern Iraq an extension of itself, thereby allowing Iran to vastly, albeit indirectly, increase its share in the global energy market. With the U.S. sanctions campaign against Iran intensifying, this is an especially critical goal for Tehran.

Iran is well-positioned to reap the benefits of increased Iraqi oil production. According to Stratfor sources, roughly 10 percent of Basra's oil production is smuggled, most of which ends up in Iran for export. The market value of the oil that is stolen each day is roughly $20 million, providing a significant source of funds from which Iran can draw to protect itself against sanctions.

The Iraq-Iran Smuggling Route

The main smuggling route from Iraq to Iran begins at the Khor al-Zubayr oil terminal, where the bulk of Iraq's southern oil converges. Smugglers will drill holes in the pipeline at the oil terminal and load containers of oil into small boats. The boats are manufactured locally in Basra and typically carry between 70 and 120 barrels of crude. From there, the boats take the crude down the Khor al-Zubayr waterway out to the Persian Gulf, where it is loaded onto tankers bound for Iran.

Thefts also occur farther down the smuggling route near al-Faw Peninsula, where smugglers make holes in underground pipelines, using hydraulic perforation equipment to avoid fires. Much of the oil leaks into artificial lakes in the area, where tankers come and load it. From the al-Rasas island near al-Faw Peninsula, crude can travel by boat up the Bahmanshir River (a tributary of the Karun River) to the Abadan refinery in Iran for processing and export.

Oil smuggling along the river known as the Shatt al-Arab also occurs, though it is much less common due to the hazardous nature of the waterway and increased monitoring along the route. High-speed Iraqi boats are used to travel along the Shatt al-Arab to Iranian territorial waters to unload their cargo, but the route is costly due to the number of bribes that need to be paid along the way.

Rampant smuggling has long been a characteristic of Iraqi oil production, so it makes sense that current infrastructure and business practices in southern Iraq allow ample room for oil theft. Metering systems to gauge oil flow and detect disruptions are more prevalent in the Basra and Khor al-Zubayr ports but are largely absent along the rest of the oil transit route. Many of the meters are damaged and deliberately not repaired to facilitate smuggling. Moreover, Basra oil officials involved in the illicit oil trade are known to play a role in delaying repairs to holes in pipelines to give the smugglers more time to operate.

Iran's Oil Smuggling Network in Iraq

Iran has an extensive network of politicians, oil unions and cartels, and militias that it uses to reap the benefits of Iraq's southern oil production. The multiple players and complex ideologies that make up Iraq's Shiite landscape require Iran to devote a lot of time and resources to managing the various stakeholders in Iraq's southern oil industry. This variety also allows Iran to play the different sides off one another to preserve its control over the oil smuggling network.

Political Groups

Ideally, Iran would like to see southern Iraq evolve into a single, Shiite-dominated state within an Iraqi federation that would serve as an Iranian satellite. Theoretically, such a state would allow Iran to carve out a more defined sphere of influence among the Iraqi Shia to help manage important tasks such as distributing revenues from the oil smuggling network. Iran's desire for a distinct Shiite state in Iraq may explain why Iran's closest political ally, the Islamic Supreme Council of Iraq, has been the Iraqi parliament's strongest proponent for establishing a single Shiite region in the south. However, the majority of the Shiite groups in the south, such as the Dawa Party, the Sadrite movement and the al-Fadhila party, have opposed the idea. These groups work closely with the Iranians but are more nationalist and still see a need to preserve political autonomy from Iran.

Al-Fadhila is the most entrenched in Iraq's oil smuggling business. Basra residents are even known to refer to al-Fadhila, which means "virtue" in Arabic, as the "Islamic Oil Party." The party is firmly Iraqi nationalist and has been highly resistant to Baghdad's attempts to bring more foreign energy expertise to the south for fear of seeing its regional clout undermined, but its leader, Sheikh Mohammad Yaqubi, is friendly with Iran. Al-Fadhila has a significant presence in the Southern Oil Company of Iraq and maintains a strong relationship with the trade union of workers in the Basra oil industry. The party will typically pay Southern Oil Company employees who collaborate with it in oil theft around $5,000-$10,000 per 1,000-barrel shipment. Al-Fadhila is also the leader in southern Iraq when it comes to using oil revenues to buy the allegiance of local political groups, gangs and the Basra police force.

Militias

Iran plays a significant role in managing the various militias involved in oil smuggling in southern Iraq. In return for protecting Iran's energy interests and eliminating resistance to the Iranian-run oil smuggling networks, the militias get a significant cut of the profits. When one militia grows too powerful, Iran will typically find ways to dilute its strength by developing competing splinter groups and integrating militia members into the security apparatus and sometimes even the political process. Iran's strategy of managing Iraq is to alter the key Shiite leaders it deals with, which ensures that no one becomes strong enough to consider abandoning or turning against Iran. This dynamic is illustrated in Iran's handling of Iraqi nationalist Shiite leader Muqtada al-Sadr and his Mehdi Army, Asaib Ahl al Haq (which splintered from the Sadrites with Iranian backing) and the rise of the Hezbollah Brigades in the Iranian oil smuggling network.

Al-Sadr and his following have traditionally been vehemently nationalist and have taken care to distance themselves from Iran. When Qais al-Khazali, who studied under al-Sadr's father, Grand Ayatollah Mohammed Sadiq al-Sadr, split from the group in 2004 to form his own faction, Iran developed a tight relationship with Khazali's group. Khazali eventually formed his own militia, Asaib al-Haq (League of the Righteous), with heavy Iranian financial and military assistance.

In 2007, al-Sadr fled to Iran in the face of threats from the U.S. military and his own Shiite rivals. Al-Sadr announced that he was deactivating the Mehdi Army in 2008 in exchange for entry into the Iraqi government. The Sadrites now hold 40 seats, a majority of the ruling Shiite coalition's seats in parliament, and control seven ministries, though al-Sadr remains under Iran's influence. Whereas at the beginning of the decade, the Sadrite movement enjoyed more autonomy in southern Iraqi affairs, the Promised Day Brigade, which evolved out of the Mehdi Army, now sits well within the Iranian sphere of influence.

While the clout of the Sadrites waned in the south and rose in the central government, Asaib Ahl al-Haq became the primary militia Iran would rely on to run its business in Basra. The militia has proved particularly effective in containing tribal resistance to Iran's operations in Basra, most of which came from Sheikh Kazim al-Unayzan, who leads the south clan council and whose following is said to exceed 3 million Shia. An illustration of Asaib Ahl al-Haq's utility to Iran was witnessed when tribal Sheikh Mohammad al-Bahadli, chief of the council of liberation and construction, formed his own militia called Asad Allah al Ghalib. This militia, according to a Stratfor source in the region, was quickly put down by Asaib Ahl al-Haq. Asaib Ahl al-Haq also has a reputation of liquidating Iran's rivals in the south, including clan leaders, officials at Basra and Umm Qasr ports, and employees of the Southern Oil Company of Iraq who refuse to cooperate in Iran's oil smuggling network.

In line with previous tactics, Iran appears ready again to diversify its militia assets and has played a key role in pressuring the Iraqi central government to welcome Khazali and Asaib Ahl al-Haq into the political process. In early January, the Iraqi government announced that Asaib Ahl al-Haq has not turned in its weapons but that it has agreed to lay them down and plans to participate in the next parliamentary elections under a new name.

With Asaib Ahl al-Haq entering the political arena, Iran has already prepped another key Shiite militant patron -- the Hezbollah Brigades -- to backfill Asaib Ahl al-Haq's role in protecting the oil smuggling business. The Hezbollah Brigades have not expressed any interest in entering the political process and have stressed the need to play a leading militant role in the south. Marginal groups that have an Islamist orientation and that have politically accommodated themselves to Iran in exchange for oil dividends include Harakat Sayyid al Shuada, Hizb Tha'r Allah al Islami, Shuhada al Mihrab, and the March 17 Party of Sheikh Abdullah al Ishmain.

Iran's Oil Syndicate

The main Iranian figure who manages the Basra oil syndicates is Gen. Qassem Suleimani, the commander of the Quds Force of the Islamic Revolutionary Guard Corps (IRGC). Suleimani plays a key role in buying patronage in Basra and the rest of the south using the revenues from stolen oil. Most of the money is deposited in branches of IRGC-owned banks in Iraq. Suleimani's network covers the tasks of arms smuggling, oil smuggling to Iran, the collection and dissemination of oil revenues, and the abduction (and sometimes assassination) of anti-Iranian figures in southern Iraq.

Tehran's Leverage over Baghdad

Iran's control over oil smuggling in Basra is institutionalized and well beyond the ability of the central government in Baghdad to control. Though Iran is in the process of consolidating Shiite influence in Iraq, it has no desire to see a strong central authority in Baghdad that could try to undermine its already well-entrenched leverage in the south. As a result, Iran has quietly but firmly resisted Iraqi Prime Minister Nouri al-Maliki's attempts to wield exclusive control over the government and his efforts to augment his military and political strength in the south. In fact, Iran's most effective way of ensuring its influence over the political authorities in Baghdad is by maintaining a strong grip over its oil smuggling operations in the south. Iran uses its energy clout in Iraq to ensure that Iraqi government authorities, including al-Maliki, get a hefty share of monthly revenues from the oil theft -- amounting to millions of dollars -- giving Baghdad less inclination to protest Iranian interference in Iraqi affairs.

Iran's significant and growing influence over Iraq's oil industry cuts to the heart of the U.S. challenge in trying to contain Iran in Iraq. When it comes to critical policy decisions on extending the U.S. troop presence in Iraq or in accepting major military assistance from the United States, Iran has ample financial might from the oil revenues it earns through smuggling to influence the minds of Iraqi decision-makers. Likewise, U.S.-led efforts to tighten sanctions and cut into Iran's bottom line fail to take into account the millions of dollars Iran is able to bring in daily through its shadowy channels throughout Basra.

note: this article from www.stratfor.com. Here are the links: http://www.stratfor.com/analysis/special-report-irans-oil-smuggling-network-iraq

The Turkish Role in Negotiations with Iran

By George Friedman



By George Friedman
The P-5+1 talks with Iran will resume Jan. 21-22. For those not tuned into the obscure jargon of the diplomatic world, these are the talks between the five permanent members of the U.N. Security Council (the United States, Britain, France, China and Russia), plus Germany — hence, P-5+1. These six countries will be negotiating with one country, Iran. The meetings will take place in Istanbul under the aegis of yet another country, Turkey. Turkey has said it would only host this meeting, not mediate it. It will be difficult for Turkey to stay in this role.
The Iranians have clearly learned from the North Koreans, who have turned their nuclear program into a framework for entangling five major powers (the United States, China, Japan, Russia, South Korea) into treating North Korea as their diplomatic equal. For North Korea, whose goal since the collapse of the Soviet Union and the absorption of China with international trade has come down to regime survival, being treated as a serious power has been a major diplomatic coup. The mere threat of nuclear weapons development has succeeded in doing that. When you step back and consider that North Korea’s economy is among the most destitute of Third World countries and its nuclear capability is far from proven, getting to be the one being persuaded to talk with five major powers (and frequently refusing and then being coaxed) has been quite an achievement.

Iran Exploits an Opportunity

The Iranians have achieved a similar position. By far the weakest of the negotiators, they have created a dynamic whereby they are not only sitting across the table from the six most powerful countries in the world but are also, like the North Koreans, frequently being coaxed there. With the obvious blessings of the others, a seventh major power, Turkey, has positioned itself to facilitate and perhaps mediate between the two sides: the United States, Britain, France, Russia, China and Germany on one side, Iran on the other. This is such an extraordinary line-up that I can’t help repeating it.
No one does anything about North Korea militarily because it is more of a nuisance than a threat, even with its artillery in range of Seoul (fixed artillery positions are perfect targets for U.S. air power). Negotiations and occasional aid solve the problem. Iran’s position is much more significant and goes far beyond potential nuclear weapons. If the United States withdraws from the region, Iran becomes the most powerful conventional power in the Persian Gulf, regardless of whether it has nuclear weapons. Given that the United States is officially bound to leave Iraq by the end of this year, Iran is becoming substantially more powerful.
North Korea’s goal is regime survival. It has no goals beyond that. Iran’s ambitions include regime survival but go well beyond it. Indeed, if there are any threats to the regime, they do not come from outside Iran but from inside Iran, and none of them appears powerful enough to cause regime change. Iran, therefore, is less about preserving its power than it is about enhancing it. It faces a historic opportunity and wants to exploit it without embroiling itself in a ground war.
The drawdown of American forces in Iraq is the first step. As U.S. power declines in Iraq, Iranian power increases. Last week, Muqtada al-Sadr returned to Iraq from Iran. Al-Sadr was the leader of a powerful pro-Iranian, anti-American militia in Iraq, and he left Iraq four years ago under heavy pressure from American forces. His decision to return clearly was not his alone. It was an Iranian decision as well, and the timing was perfect. With a nominally independent government now in place in Iraq under the premiership of Nouri al-Maliki, who is by all accounts pro-Iranian, the reinsertion of al-Sadr while the U.S. withdrawal is under way puts pressure on the government from the Iranians at the same time that resistance from the United States, and the confidence of its allies in Iraq, is decreasing.

U.S. Options

The United States now faces a critical choice. If it continues its withdrawal of forces from Iraq, Iraq will be on its way to becoming an Iranian satellite. Certainly, there are anti-Iranian elements even among the Shiites, but the covert capability of Iran and its overt influence, coupled with its military presence on the border, will undermine Iraq’s ability to resist. If Iraq becomes an Iranian ally or satellite, the Iraqi-Saudi and Iraqi-Kuwaiti frontier becomes, effectively, the frontier with Iran. The psychological sense in the region will be that the United States has no appetite for resisting Iran. Having asked the Americans to deal with the Iranians — and having failed to get them to do so, the Saudis will have to reach some accommodation with Iran. In other words, with the most strategically located country in the Middle East — Iraq — Iran now has the ability to become the dominant power in the Middle East and simultaneously reshape the politics of the Arabian Peninsula.
The United States, of course, has the option of not drawing down forces in Iraq or stopping the withdrawal at some smaller number, but we are talking here about war and not symbols. Twenty thousand U.S. troops (as the drawdown continues) deployed in training and support roles and resisting an assertive pro-Iranian militia is a small number. Indeed, the various militias will have no compunction about attacking U.S. troops, diplomats and aid workers dispersed at times in small groups around the country. The United States couldn’t control Iraq with nearly 170,000 troops, and 50,000 troops or fewer is going to result in U.S. casualties should the Iranians choose to follow that path. And these causalities would not be accompanied by hope of a military or political success. Assuming that the United States is not prepared to increase forces in Iraq dramatically, the Iranians now face a historic opportunity.
The nuclear issue is not all that important. The Israelis are now saying that the Iranians are three to five years away from having a nuclear weapon. Whether this is because of computer worms implanted in Iranian centrifuges by the U.S. National Security Agency or some other technical intelligence agency, or because, as we have said before, building a nuclear weapon is really very hard and takes a long time, the Israelis have reduced the pressure publicly. The pressure is coming from the Saudis. As STRATFOR has said and WikiLeaks has confirmed, it is the Saudis who are currently pressing the United States to do something about Iran, not because of nuclear weapons but because of the conventional shift in the balance of power.
While Iran could easily withstand the destruction of weapons that it does not have, its real fear is that the United States will launch a conventional air war designed to cripple Iran’s conventional forces — its naval and armored capability, particularly. The destruction of Iranian naval power is critical, since Iran’s most powerful countermove in a war would be to block the Strait of Hormuz with mines, anti-ship missiles and swarming suicide craft, cutting off the substantial flow of oil that comes out of the strait. Such a cutoff would shatter the global economic recovery. This is Iran’s true “nuclear” option.
The Iranians are also aware that air warfare — unlike counterinsurgency — is America’s strong suit. It does not underestimate the ability of the United States, in an extended air war, to shatter Iran’s conventional capability, and without that conventional capability, Iran becomes quite insignificant. Therefore, Iran comes to the table with two goals. The first is to retain the powerful negotiating hand it has by playing the nuclear card. The second is to avoid an air campaign by the United States against Iran’s conventional capabilities.
At stake in this discussion is nothing less than the future of the Arabian Peninsula. The Iranians would not have to invade militarily to be able to reshape the region. It would be sufficient for there to be the potential for Iran to invade. It would shift the regime survival question away from Iran to Saudi Arabia. U.S. troops in Kuwait would help but would not change the basic equation. The Saudis would understand that having left Iraq, the United States would be quite capable of leaving Kuwait. The pressure on the Saudis to accommodate the Iranians would be terrific, since they would have to hedge their bets on the United States. As for basing troops in Saudi Arabia itself, the risks pyramid, since the U.S. presence in Saudi Arabia during Desert Shield and Desert Storm helped trigger the rise of al Qaeda.
Therefore, the choices appear to be accepting the shift in the regional balance in favor of Iran, reversing the withdrawal of U.S. forces from Iraq or attempting to destroy Iran’s conventional forces while preventing the disruption of oil from the Persian Gulf. From the American point of view, none of these choices is appetizing. Living with Iranian power opens the door to future threats. Moving heavily into Iraq may simply not be possible with current forces committed to Afghanistan. In any case, reversing the flow out of Iraq would create a blocking force at best, and one not large enough to impose its will on Iraq or Iran.
There is, of course, the option of maintaining or intensifying sanctions. The problem is that even the Americans have created major loopholes in these sanctions, and the Chinese and Russians — as well as the Europeans — are happy to undermine it at will. The United States could blockade Iran, but much of its imports come in through land routes in the north — including gasoline from Russia — and for the U.S. Navy to impose an effective naval blockade it would have to stop and board Chinese and Russian merchant ships as well as those from other countries. The United States could bomb Iranian refineries, but that would simply open the door for foreign sales of gasoline. I do not have confidence in sanctions in general, and while current sanctions may hurt, they will not force regime change or cause the Iranians to forego the kind of opportunities they currently have. They can solve many of the problems of sanctions by entrenching themselves in Iraq. The Saudis will pay the price they need for the peace they want.
The Europeans are hardly of one mind on any subject save one: They do not want to see a disruption of oil from the Persian Gulf. If the United States could guarantee a successful outcome for an air attack, the Germans and French would privately support it while publicly condemning American unilateralism. The Chinese would be appalled by the risks U.S. actions would impose on them. They need Middle Eastern oil, though China is happy to see the United States bogged down in the Middle East so it doesn’t have to worry too much about U.S. competition elsewhere. And, finally, the Russians would profit from surging energy prices and having the U.S. bogged down in another war. For the Russians, unlike the Europeans and Chinese, an attack would be acceptable.
Therefore, at the table next week will be the Americans, painfully aware that its campaigns look promising at the beginning but frequently fail; the Europeans and Chinese, wanting a low-risk solution to a long-term problem; and the Russians, wanting to appear helpful while hoping the United States steps in it again and ready to live with soaring energy prices. And there are the Iranians, wanting to avoid a conventional war but not wanting to forego the opportunity that it has looked for since before the Islamic Republic — domination of the Persian Gulf.

The Turkish Stake

Then there are the Turks. The Turks opposed the U.S. invasion of Iraq because they expected it to fail to establish a viable government in Baghdad and thereby to destroy the balance of power between Iraq and Iran. The Turks have also tried to avoid being drawn into the south beyond dealing with threats from Turkish Kurds operating out of Iraq. At the same time, Turkey has been repositioning itself as both a leading power in the Muslim world and the bridge between the Muslim world and the West, particularly the United States.
Given this, the Turks have assumed the role of managing the negotiations between the P-5+1 and Iran. The United States in particular was upset at Turkey’s last effort, which coincided with the imposition of sanctions by the P-5+1. The Turks, along with Brazil, negotiated a transfer of nuclear materials from Iran that was seen as insufficient by the West. The real fact was that the United States was unprepared for the unilateral role Turkey and Brazil played at the time they played it. Since then, the nuclear fears have subsided, the sanctions have had limited success at best, and the United States is a year away from leaving Iraq and already has withdrawn from a combat role. The United States now welcomes the Turkish role. So do the Iranians. The rest don’t matter right now.
Now the Turks must face their dilemma. It is all very good to want to negotiate as a neutral party, but the most important party isn’t at the table: Saudi Arabia. Turkey wants to play a dominant role in the Muslim world without risking too much in terms of military force. The problem for Turkey, therefore, is not so much bringing the United States and Iran closer but bringing the Saudis and Iranians closer, and that is a tremendous challenge not only because of religious issues but also because Iran wants to be what Saudi Arabia opposes most: the dominant power in the region. The Turkish problem is to reconcile the fundamental issue in the region, which is the relationship between Persians and Arabs.
The nuclear issue is easy simply because it is not time-sensitive right now. The future of Iraq is time-sensitive and uncertain. The United States wants to leave, and that creates an Iranian ally. A pro-Iranian Iraq, by merely existing, changes the reality of Saudi Arabia. If Turkey wants to play a constructive role, it must find a formula that satisfies three needs. The first is to facilitate the American withdrawal, since simply staying and taking casualties is not an option and will result in the conventional air war that few want. The second is to limit the degree of control Iran has in Iraq, guaranteeing Iranian interests in Iraq without allowing absolute control. The third is to persuade Saudi Arabia that the degree of control ceded to Iranians will not threaten Saudi interests.
If the United States leaves the region, the only way to provide these guarantees to all parties is for Turkish forces, covert and overt, to play an active role in Iraq counterbalancing Iranian influence. Turkey has been a rising power in the region, and it is now about to encounter the price of power. The Turks could choose simply to side with the Iranians or the Saudis, but neither strategy would enhance Turkish security in the long run.
The Turks do not want an air war in Iran. The do not want chaos in Iraq. They do not want to choose between Persians and Arabs. They do not want an Iranian regional hegemon. There are many things the Turks do not want. The question is: What they do want? And what risks are they prepared to take to get it? The prime risk they must take is in Iraq — to limit, not block, Iranian power and to provide a threat to Iran if it goes too far in the Arabian Peninsula. This can be done, but it is not how the Turks have behaved in the last century or so. Things have changed.
Having regional power is not a concept. It is a complex and unpleasant process of balancing contradictory interests in order to prevent greater threats to a country’s interests emerging in the long run. Having positioned itself as a host for negotiations between the United States, Britain, France, China, Russia and Germany on one hand and Iran on the other hand, Turkey has a basic decision to make: It can merely provide a table for the discussion, or it can shape and guarantee the outcome.
As the Americans have learned, no one will thank them for it, and no one will think better of them for doing it. The only reason for a deeper involvement as mediator in the P-5+1 talks is that stabilizing the region and maintaining the Persian-Arab balance of power is in Turkey’s national interest. But it will be a wrenching shift to Turkey’s internal political culture. It is also an inevitable shift. If not now, then later.

"The Turkish Role in Negotiations with Iran is republished with permission of STRATFOR."



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