US-Iran tension to weigh on European companies’ decision making

US-Iran tension to weigh on European companies’ decision making

Baku, Azerbaijan, Oct.17

By Leman Zeynalova – Trend:

The ongoing tension between the US and Iran over the nuclear deal will affect the decision-making process of various European and other international companies, Francis Perrin, Senior Research Fellow at the French Institute for International and Strategic Affairs, told Trend.

"The refusal of the US President Donald Trump to certify that the suspension of sanctions under the July 2015 agreement is appropriate and proportionate to measures taken by Iran to terminate its nuclear program is an important factor of uncertainty which will weigh on the decision-making process of various European and other international companies," he said.

Moreover, President Trump indicated that the US would impose additional sanctions on Iran and he called for the US Congress and its allies to work with his administration in order to improve the agreement on Iran's nuclear program, added Perrin.

"Of course, as often, President Trump overplays his hand. US allies are not at all ready to change the JCPOA as the strong joint reaction from Germany, France and the United Kingdom shows. The European Union, Russia and China also support the JCPOA. The Trump Administration is thus very isolated but the US is a superpower with a long arm. For several companies President Trump's decision will have a negative impact on their investment plans and projects in Iran as the level of political risk linked to this country will be higher," he noted.

Perrin pointed out that there will be a need to study carefully the content of future US sanctions and of the decisions that will be taken by Congress.

"The two key issues are: will these sanctions impact directly and indirectly the oil and gas sector? And will the US reintroduce extraterritorial sanctions against non-US companies buying hydrocarbons produced in Iran and/or investing in the oil and gas sector in Iran? Pending these future decisions companies will remain cautious. This situation will very probably delay the negotiation process between Iran and international oil companies," said the expert.

As for the current situation on the oil market, he said that the worsening of tensions between the US and Iran has an upward impact on oil prices.

"It seems that traders are rediscovering the importance of geopolitics after a period characterized by an oil glut on the world oil market. OPEC and non-OPEC production reductions and the ongoing negotiations between exporting countries with a view to extend the validity of these reductions beyond end-March 2018 as well as the increase of world oil demand are other important factors which must be taken into account to explain the rise in oil prices," said Perrin.

He believes that US-Iran tensions could have a medium-term impact on prices.

"It is very unlikely that their relationship will improve before the end of 2020, which is the normal end of President Trump's term. It is in fact very likely that a further deterioration will be registered," added the expert.

Iran is a country which has a great potential to increase its oil production and exports, he said, adding that if these tensions with the US, the threat of new US sanctions and higher regional instability deter several international oil companies from investing in Iran the rise in its production and export capacities will be slower than forecast.

Such a trend could imply higher oil prices as world oil demand will go on increasing during the coming years, he concluded.


Follow the author on Twitter: @Lyaman_Zeyn

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