After reaching an interim nuclear deal with major world powers, Iran’s government is turning its attention to mending strained relations with Western countries.Iran is enthusiastic for the United States and the Europeans to lift harsh economic sanctions near future.

In some circles in the political capitals of the Europe, having a close relationship with our southern neighbor are welcomed. Of course the main reason of this observed warmer relationship between the west and Iran is political interests of the parties, however, geo-economic interests are also important part of the relationship. Iran holds 22.0 % gas reserves, and 10.0 % of gas reserves of the world and at the same time it is situated on a very important geopolitical geography between middle east and Eurasia. United States and Brussels which didn’t want to get dipped into Syrian Mud, couldn’t envision the potential consequence of conflicts with Iran. Washington and Brussels have re-assessed its policy towards and serious edition of the western policies towards Iran is being observed. Without touching upon the political aspects of West-Iran warmer relationship, analysis of economic effects of the closer relationship between parties benefits west in current situation.

By bringing back Iran into international market the West will be able to indirectly control the energy prices. In 2009 Iran was able to produce 1.9 million barrel oil daily, 2013 it was decreased to 1.1 million barrel daily. On the other hand, political issues for a long time have formed a “psychological umbrella” in the oil and gas market and it was not only keeping oil prices high, but also stimulating increase in stock market. Although Iran is the member of OPEC by melting the ice between United States, Iran will try to export more energy resources out of the country. If we take into account the facts that in the last two years the sanctions towards Iran were even more severe, Iranian national currency lost 45.0 % of its value, real GDP decreased to 988 billion USD, as well as export potential of the country dropped significantly, our southern neighbor will try to benefit from current observed warmer relationship and will try to develop internal Economic and Political situation. This is possible only if Iran exports more energy resources into international energy market. As a result, Iran and West starts win-win game. There is not a loser in this game. Both sides leaves the arena with victory. Consequently, Iran achieves new export incomes and the west gets cheaper energy resources. Having cheap energy resources for EU is important not only on decreasing the cost for energy, but also creation of new powers in the global system and maintain it’s rivals powers in control.

The decrease of the oil price would give the change to the West countries to decrease the expenses in the real sector and to produce cheap export products. This, of course, the euro-zone countries living the last period of the crisis is crucial in order to increase the export potential. The last 4 years oil prices in the world economy were increased 74.0 % and the same period the real sector expenses were increased 17.0 %. Taking into account this phrase, it is not difficult to understand the economic interests of the West countries directed to the domestic production.

The potential decrease of the oil prices in the world economy will cause the change of the attitudes of the powers in the global system. High oil prices in the world economy did not cause the weakness one of the main economic powers of China; in contrast it caused the strengthening of the Russia in the global arena. We can say that “high oil prices-expensive and uncompetitive China goods” does not work anymore. After the global financial crisis or after the high oil prices in the world market the GDP of China is about $8.4 trillion in 2013 compared to $4.4 trillion in 2008. At the same time, compared to 2009 in 2013 Russia economy increased 64 percent yearly, and increased from $1.3 trillion to $ 2.2 trillion. In this time period in Russia GDP per capita was increased from 45.0 % and have been $15.0 thousand. It is observed that, at the moment Russia pays attention to the internal issues as well as regional issues. As Russia has a deep impression at the post Soviet countries, and his “economic projects” are not meet “warmly” in the West. According to the first evaluation, the decrease on the energy recourses’ price will cause the Russia’s state revenues as well: thus, every $10 decrease in every barrel of the oil means 0.7 percent decrease of the GDP in Russia. Energy recourses form 80.0 % of the export and 76.0 % of federal budget revenues in Russia. It means, we talk about serious economic tool. Russia used “Iran and Near East” card for economic and political purposes for a long time, but now he faces another side of this card. Now West tries to get the ball to his playground and this is a serious signal for Russia.

The warming relations with Iran will allow diversification of the supply of the gas in the Europe. A strong feel for such diversification in EU becomes apparent, when one considers 43.0 % share of Russia in gas supply. Import of the gas from Caspian countries will not better the current situation. This more related with the stubbornness of Ashgabat. Brussels failed to achieve success in Eastern Coast of Caspian see, despite having successful talks with Baku. This was not associated with negotiation willingness of Brussels, but the Ashgabat. Thus considering west coast of Caspian is now even more appropriate for western diplomats.

Talks with Iran will also prevent emergence of new strategic players in Middle East. The cornered Iran was unable to prevent Turkeys expansion in the Middle East. The geo-political review of current year reveals Brussels’ uncomfortability with independent actions of Turkey in Middle East. By de-cornering Iran Brussels can neutralize Turkeys actions and decrease Turkey’s influence in the Middle East. This does not only imply political shifts, but also the economic shifts in the world.

The new Iran also means new market for western countries. A market with 78.0 millions purchaser is not a small one. The USD 13.0 thousand GDP per capita figure of the Iran talks itself about the purchasing power of nation. Western goods will not be only used for revenues, but also for changing attitudes of the Iranians. Considering the changes, even political ones start with changing attitudes, it is easy to understand West’s strategy. It is believed, if Iran proves itself as Brussels wishes, WTO membership of Iran can be a topic for discussion. With these, next 6 months in Iran can be the warm ones. But be warned, a warm in winter can also harm.

Vugar Bayramov, Ph.D.

Chairman of CESD

December 12, 2013
Baku, Azerbaijan

Leave A Comment