The future of oil

The increase in US oil and natural gas production could have a dramatic effect on world energy markets, according to Dr Pierre Noel, Sultan Hassanal Bolkiah Senior Fellow for Economic and Energy Security at IISS–Asia.

Dr Noel appeared on CNN yesterday to discuss the future of the global oil market, the effect of sanctions against Iran, and new figures released by the International Energy Agency indicating increased oil and gas production in the United States.

‘US unconventional liquid supply is growing by a million barrels a day each year, which has the potential to revive the growth of non-OPEC supplies,’ he explained. The effect on future oil prices however is unclear, and ‘depends on the supply–demand balance, and it is very difficult to know what’s ahead of us’, he said.

‘Demand is growing rapidly in emerging economies: China, India but also Southeast Asia – so you may actually need this rise in unconventional supply, especially if other parts of the supply picture disappoint.’ US and EU sanctions against Iran, for example, might also make this unconventional supply a necessity.

Dr Noel discussed the effect the sanctions might have on the Iranian presidential elections in June. He explained that the latest round of sanctions were ‘working’ – meaning that the situation was getting harder for the Iranian population – but that this would not necessarily mean the public would choose a leader more open to engaging with the West. ‘The risk that I see politically is that a larger and larger share of the population will actually reward a politician tempted by a hardening of the Iranian position, rather than a softening,’ he said.

He also discussed the security impact that a hard-line Iranian position would have on the region,  explaining that Iran’s neighbours were worried about the connection between Iran and the crisis in Syria. ‘I think the governments in this part of the world see the future as a very risky one geopolitically,’ he added.

Watch the video.

For more on this topic, watch the IISS’s May 15 panel discussion on the future of the Middle East oil environment, and read the IISS Strategic Comment on the United States’ falling need for foreign oil.

Can China end the DPRK’s nuclear blackmail?

Then Chinese Defence Minister Liang Guanglie addresses the 2011 Shangri-La Dialogue

By Dr William Choong, Shangri-La Dialogue Senior Fellow for Asia-Pacific Security

Members of the United Nations Security Council, including China, have strongly condemned North Korea’s nuclear test last week, and that rare unanimity could be useful for regional security. If China were to put pressure on North Korea (an historic development that looks possible) while the United Nations Security Council tightened the vice of sanctions, perhaps Pyongyang could be pressured to at least suspend further tests?

This, however, is probably not to be. North Korea has maintained its missile and nuclear programmes as a going concern for years, despite a growing raft of sanctions. In addition, sanctions have done little to change the decision-making of other worrisome countries such as Iran.

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Lack of propellants grounds Iran’s missiles

What a difference a lack of powdered aluminium seemingly can make. Iran has tested its upgraded Sajjil-2 missile just once, believes IISS expert Michael Elleman, and the most likely explanation is Tehran’s inability to secure the necessary propellants, including powdered aluminium. This was one way economic sanctions were hindering Iran’s ballistic-missile programme, Elleman, IISS-Middle East Senior Fellow for Regional Security Cooperation, said during a recent discussion at IISS-US.

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D-Day for sanctions on Iran

Iranian President Mahmoud Ahmadinejad (Photo: Iranian Presidents Office)

By Mark Fitzpatrick, Director, Non-Proliferation and Disarmament Programme

Today is the day when biting US sanctions fully apply to foreign oil purchases through the Iranian central bank. But as yet there is little public gnashing of teeth. On Sunday, another sanctions deadline will fall when the EU ban on oil sales, and on the provision of insurance for tankers carrying Iranian oil, takes full effect.

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Iran: ‘We accept yuan, rupees’

Iranian President Mahmoud Ahmadinejad and Chinese President Hu Jintao:  Photo Iranian Embassy

By Elly Jupp, Research Associate, IISS-Middle East

Recent announcements that Iran is accepting yuan (renminbi) and rupees for crude sales to its two biggest clients, China and India, is another sign of an ongoing structural shift in global economic power. As more growth moves to the industrialising economies of Asia and other emerging regions, this geo-economic shift has begun to challenge the US dollar’s status as the world’s primary reserve currency. Although the dollar’s demise is hardly imminent, outgoing World Bank President Robert Zoellick is among those suggesting that a new monetary regime, with multiple reserve currencies, is needed for an increasingly multi-polar world.

The non-dollar payments for Iran’s oil are noteworthy for several reasons. Firstly, the move is a clear sign that Beijing and New Delhi consider their energy needs more important than heeding United States requests to join a boycott of Iran over its nuclear programme. Beijing has much to lose by supporting further action against Iran. The loss of Iranian oil would cause a massive supply shock to the Chinese economy and numerous contracts, worth billions, for energy exploration and refining would be at risk. India values Iran as a gateway to Central Asia and Afghanistan, especially in light of Delhi’s strained relations with Pakistan and China.

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Britain looks towards Asia

By Dr Tim Huxley, Executive Director, IISS-Asia

Britain is to end its policy of discouraging trade with Burma, the UK Foreign Security William Hague announced in the second IISS Fullerton Lecture in Singapore on 26 April. He said that in response to the ‘remarkable changes’ taking place in the country – which have included opposition leader Aung San Suu Kyi’s election to a parliamentary seat – London would be promoting ‘responsible investment that will benefit local communities and respect the local environment’.

The move followed the European Union temporary removal of sanctions on Burma and was accompanied by a greater UK ambition to deepen ties with Asia, ‘the engine of the world’s growth today’. In a speech delivered with flair and enthusiasm, Hague said the British government wanted to be ‘a leading partner with Asian countries… on trade and commerce, in culture, education and development, and in foreign policy and security’.

In a lively Q&A session, in which he took queries via Twitter as well as from the audience in the room, the foreign secretary tackled topics ranging from territorial disputes in the South China Sea, and possible free-trade agreements between Asia and Europe to cyber security and controversial arms sales to Indonesia. He revealed that before his first official visit in 2011 no British foreign secretary had visited Australia for 17 years – ‘something we are putting right in spectacular terms’, he promised.

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Iran defiant

President Mahmoud Amadinejad speaks at 33 anniversary of Iranian Revolution. Photo Office of the Iranian PresidentBy Mark Fitzpatrick, Director, Non-Proliferation and Disarmament Programme

Today Iran announced three advances in its nuclear programme, calculated to show that it won’t be impeded by sanctions, sabotage or assassinations. Two of these announcements were about progress in gas centrifuge technology, heightening concerns about Tehran’s nuclear intentions and capabilities. Iran supposedly has increased the number of working centrifuges at the Natanz enrichment plant from 6,000 to 9,000. It also claims to have produced a ‘fourth-generation’ centrifuge.

If both of these announcements are true, then the timeline will be significantly shortened for Iran to be able to build nuclear weapons, if a decision were made to do so. But it will be important to know how many of those 3,000 additional centrifuges will actually work, and how well. The same applies for the supposed fourth-generation model. Iran has been working for more than 15 years on various second-generation models that it still has not perfected, in part because sanctions and other restrictions have impeded its ability to acquire the necessary material from abroad. Two years ago Iran unveiled a ‘third-generation’ model, but then said nothing more about it.

These announcements will further enflame talk of military options, which has reached feverish pitch in some quarters in Israel and the US. But even in the highly unlikely event that everything Iran has announced is true, it would still take Iran a couple of years to produce a handful of weapons. Any such decision to dash for weapons would surely be noticed by the international inspectors.

The remaining announcement – Iran’s claim that it’s now fuelling its Tehran Research Reactor (TRR) with domestically produced fuel plates, using 19.75% enriched uranium – is benign, except in terms of nuclear safety for Iranians themselves. The reactor is used to make medical isotopes for cancer patients, an eminently peaceful purpose. But enrichment at this level is very close to being weapons usable, so it has been one of the most worrisome aspects of Iran’s nuclear programme.

Until now, the fact that Iran could not actually manufacture the fuel gave the lie to this excuse for the 19.75% enrichment. Making the fuel is not actually that difficult, but the new fuel needs to be tested for a considerable period in an operational reactor to be sure it is safe, especially since Iran does not have the fuel specifications from the original manufacturers in Argentina.

If Iran is really running the reactor with untested fuel plates, then it will be terribly unsafe for the nearby residents, as explained in the IISS Strategic Dossier on Iran’s Nuclear, Chemical and Biological Capabilities published last year. More likely, Iran is testing the fuel plates, rather than using them to power the TRR. But saying otherwise is a way for Iran to say that it is no longer interested in making any concessions to obtain foreign-supplied reactor fuel.


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