March 5, 2015 / 1:48 AM / 3 years ago

Despite Netanyahu claim, cheap oil not seen swaying Iran behavior

Israeli Prime Minister Benjamin Netanyahu waves prior to his address to a joint meeting of Congress in the House Chamber on Capitol Hill in Washington, March 3, 2015. REUTERS/Joshua Roberts

WASHINGTON (Reuters) - When Israeli Prime Minister Benjamin Netanyahu urged the United States this week to take a tough line against Iran, he argued that world powers could always push for a better nuclear deal because the Islamic Republic was vulnerable to low oil prices.

But the claim that lower oil prices can sway Iran, a major crude producer, into making greater concessions on its nuclear program seems unrealistic, experts, diplomats and even Republican lawmakers said on Wednesday.

They noted that Iran has withstood extreme fluctuations in crude prices before and that sanctions have blunted the effect of oil on its economy. Others said Iran would likely view any further concessions as humiliating and would be prepared to forego a deal if the current talks collapsed.

Most doubted that oil alone would force Tehran into a significant shift in its bargaining position.

“I think it hurts their economy, there’s no doubt about that. But I don’t think it’s decisive,” Senator John McCain, a leading Republican voice on foreign policy issues, told Reuters on Wednesday.

In his speech to Congress on Tuesday, Netanyahu cited cheap oil as a prime reason why the United States and other powers could afford to hold off on signing a “bad” nuclear deal with Iran ahead of an end-March deadline for a framework agreement.

The Israeli leader, who says the current prospective deal would hand Tehran a path to an atom bomb, called Iran “a very vulnerable regime, especially given the recent collapse in the price of oil.”

“They’ll be back because they need the deal a lot more than you do,” he told lawmakers.

Sanctions have halved Iran’s oil exports to just over 1 million barrels per day since 2012, spurring inflation and unemployment that the Obama administration has credited for forcing Iran into negotiations.

Iran’s oil and natural gas export revenue was $56 billion in the 2013-14 fiscal year, according to the International Monetary Fund. That compares to $118 billion worth of export revenue from oil and gas in 2011-12.

LESS VULNERABLE TO OIL

But the current embargoes have in some ways made Iran less vulnerable to lower oil prices because its crude revenues are largely tied up in accounts in purchasing countries.

“The short-term impact of oil prices on Iran may be blunted by sanctions that already restrict the government’s access to oil revenue held outside of Iran,” said Jen Psaki, the U.S. State Department spokeswoman.

One expert noted that the 26-year reign of Iranian Supreme Leader Ali Khamenei has seen oil prices range from as high as $140 a barrel, to a low of $10.

“There’s never been a strong correlation between his behavior and the price of oil,” said Karim Sadjadpour, an Iran expert at the Carnegie Endowment for International Peace in Washington.

A diplomat from one of the countries negotiating with Iran over its nuclear program told Reuters that worsening economic conditions have certainly played to the West’s advantage in the talks.

“The low price of oil has made the sanctions that much worse, which has clearly increased Iran’s desire for a deal,” the diplomat said.

But the diplomat also noted that some hardliners, including elements in the Islamic Revolutionary Guard Corps, benefit from the sanctions because they have greater control over goods and services.

Indeed, others warned that the United States might have trouble keeping the sanctions coalition together if talks break down, particularly if there is a perception that a hard-line U.S. position were to blame for their collapse.

“It is not possible for the United States to keep this consensus against Iran with European countries and other countries for much longer,” said Sara Vakhshouri, an energy consultant based in Washington who formerly worked in Iran’s energy sector.

“The sanctions and this consensus could erode after some time.”

Republican Senator Mark Kirk, co-author of a bill that would impose stricter sanctions on Iran, said he had seen no indication that lower oil prices had changed Tehran’s behavior, noting a recent military exercise carried out by Iranian forces near the Strait of Hormuz.

“They had enough money to build a replica of a U.S. aircraft carrier and blow it to hell,” Kirk told Reuters, saying that now was the time for more sanctions. “Even the president says the sanctions were the only reason they came to the table.”

Additional reporting by Timothy Gardner, Patricia Zengerle, Louis Charbonneau, and Arshad Mohammed; Editing by Bruce Wallace and Stuart Grudgings

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