Reports of a 5-year, $20 billion trade deal between Russia and Iran were looming large over trading in the energy markets today, with the price of Brent North Sea Crude oil dropping 1.5 percent early in trading before paring the losses to close down only 0.7%.
The deal was initially announced overnight by the Russian Energy Ministry, though mysteriously the ministry retracted the statement, promising a new statement would be issued at some point on Wednesday.
The initial statement reported cooperation in the development of Iran’s oil and gas industry, including with oil sales, as well as the construction of new Iranian power plants.
Oil sales are the big factor here, as US sanctions have severely limited Iran’s ability to export crude, and Russia has large enough market share to be able to circumvent those sanctions. The deal is estimated to have Russia buying 500,000 barrels per day, which is about half of Iran’s current export level.
So, poking the Bear has resulted in… what? A pissed-off Bear who has the ability to circumvent the US/EU imposed sanctions against themselves and Iran. Oh, and to cut off the flow of natural gas to Ukraine and the EU just as the temps start to drop. And I'll wager the US has not stepped up to enable the delivery of gas to fill the void, as some of the sanction advocates in Congress have promised, sorry Europe. Better stock up on extra Steppbett…
In fact, this is a very good deal for the EU. It allows Putin to divert attention from Ukraine while he quietly surrrenders there. The oil will probably be sold to the EU. All of Russia's oil distribution network leads to western Europe and that cannot be changed for at least several years. Alos, why should any country that's willing to buy oil directly from Iran pay a Russian middleman just to get Iranian oil?
The advantage of deals like this is that they allow Putin to save his face and divert attention away from his apparent capitulation in Ukraine. A good deal for everybody.
This demonstates that sanctions on Iran are an important factor holding oil prices so high, and crippling our own economies with energy costs.
The only ones profiting from this are oil companies, and Cheney chuckles at this success.
BRIC by BRIC, the petrodollar edifice of the hyperpower is being torn down–this is why the Imperium has gone cray-cray. The carrier task-forces of the U.S.S. Full Faith And Credit may overawe America's "enemies" (i.e., creditors and reserve currency refuseniks) for a time, but the Fed can't buy bonds forever, and the de-dollarization wolf is drawing near the door.
Look for someone throwing a monkey-wrench through an open door at Iran.
It is becoming increasingly clear that the oil deals being made between Iran and Russia is the real reason why Putin is in the cross-hairs of the US State Department.
One can never discount the gross incompetency of those in State who haven't a clue how to deal with others with differing world views.