IEEJ：December 2020

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Special Bulletin
A Japanese Perspective on the International Energy Landscape (509)

December 1, 2020

Importance of U.S. in Global Energy Situation under the Next Administration (4)Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In the fourth report on energy and environment policies of the next U.S. administration, I
would like to discuss policies on the Middle East, including Iran, and their impacts on internationalenergy markets.
Many of the Trump administration’s major policies have flatly rejected what are viewed aslegacies of the Obama administration, emphasizing its anti-Obama attitude. President Donald Trump
has harshly criticized the Paris agreement on climate change, the healthcare system nicknamed
Obamacare, and the Trans-Pacific Partnership free trade agreement, taking actions to withdraw fromor repeal them since his inauguration. Another anti-Obama policy of the Trump administration thathas exerted grave influence on the Middle East situation and the international energy situation is its
unilateral exit from the Iran nuclear deal.
As the international community’s concern grew about Iran’s nuclear development, theObama administration eased anti-Iran sanctions in exchange for Tehran accepting the reduction ofenriched uranium stocks and centrifuges and other restrictions on nuclear development, paving theway for Iran to end its isolation under sanctions and come back to the international community. It
developed a U.S.-Iran deal into Iran’s agreement with the five permanent United Nations Security
Council members and Germany (P5+1), achieving the Iran nuclear deal called “the Joint
Comprehensive Plan of Action” in July 2015. Under the nuclear deal, anti-Iran sanctions werephased out, allowing Iran to resume and expand crude oil exports that hold the key to its economy.
The major Middle Eastern power’s comeback to the international community led to growinginterests in business with Iran.
Even since before his inauguration, however, Trump has criticized the Iran nuclear deal asa bad deal that includes a sunset clause to lift restrictions on nuclear development on the expirationof the deal and lacks any restriction on ballistic missile development and others. In line with his
campaign promise, President Trump unilaterally withdrew the United States from the Iran nuclear
deal and revived and enhanced sanctions on Iran. The Trump administration developed its
crackdown on Iran into what is called “the strongest sanctions in history” or “maximum pressure.”
Consequently, Iran’s crude oil exports plunged, making it difficult for other countries to do businesswith Iran in fear of U.S. sanctions.
The Trump administration not only toughened sanctions on Iran but also continued toenhance its anti-Iran attitude in the wake of attacks on tankers near the Hormuz Strait and on key
Saudi Arabian oil facilities. In early January 2020, U.S. forces killed Iranian Revolutionary Guard
Commander Qassem Soleimani known as Iran’s hero, leading Iran to conduct a retaliatory attack.
U.S.-Iran tensions rapidly grew, causing concern about a full-fledged bilateral military clash. These1

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developments were appreciated as destabilizing the international oil situation, triggering a temporary
spike in crude oil prices in early 2020. U.S.-Iran relations have remained a key factor behind crude
oil price fluctuations.
Since during the presidential election campaigns, President-elect Joe Biden has criticizedPresident Trump’s unilateral withdrawal from the Iran nuclear deal and emphasized his readiness tocome back to the deal achieved under the Obama administration that included him as vice president.
The incoming Biden administration is expected to dramatically change U.S. policy on Iran. The
Iranian side, plagued with “the strongest sanctions in history,” might have suffered through thehardship over the past four years waiting for a U.S. administration transition. In response to the U.S.
presidential election results, in fact, Iran’s First Vice President Eshaq Jahangiri tweeted that the eraof President Trump and his adventuristic and hawkish team ended at last. The incoming U.S.
administration may promote dialogue with Tehran, attracting global attention.
But the problem is not so simple. At a time when the United States has unilaterally exitedfrom the Iran nuclear deal and raised its anti-Iran sanctions to the strongest level in history, Iran may
hope that the United States would lift the sanctions resumed and enhanced since the exit from thenuclear deal and restore the status before the exit in order to lead Tehran to come back to talks withWashington. The Iranian side for its part has gradually suspended its obligations under the nuclear
deal, while enduring the strongest U.S. sanctions in history. Iran has increased enriched uranium
stocks and centrifuges, making the deal effectively non-functional. Even if bilateral talks areresumed, the incoming U.S. administration may not make unconditional concessions but ask Tehran
to implement nuclear deal obligations. Based on developments under the Trump administration, theUnited States, Iran, and the P5+1 group may conduct negotiations with their respective purposes inmind. Iran will hold a presidential election in June, which will exert influence on U.S.-Iran relations
and talks on the nuclear deal. The future path of U.S.-Iran relations would never be flat or easy. It isgreatly uncertain.
Even if so, however, the transition to the next administration from the Trumpadministration that has implemented the strongest sanctions in history would undoubtedly reverse
the direction. If talks start, bilateral tensions may go in the direction of easing, whether their talks areeasy or not. At the same time, the international oil market may become conscious of Iran’s
resumption of crude oil exports. If things go well, Iran’s possible oil export resumption may become
an influential factor for the 2021 international oil market in the second half of the year at the earliest.
If the world economy is on a recovery path after the COVID-19 pandemic in 2021, the influence ofIran’s possible oil export resumption may be absorbed. If oil demand remains stagnant, however, thepossible Iranian oil exports may be taken as increasing oil supply pressure, working to weaken oilprices. The OPEC-plus group, consisting of the Organization of the Petroleum Exporting Countries
and non-OPEC oil producing countries, may have to readjust its current record production cuts that
exclude Iran.
While the next U.S. administration’s Iran policy and future U.S.-Iran relations attract
attention, how they would influence the entire Middle Eastern situation is becoming a great matter ofinterest among analysts. The anti-Iran containment strategy under the Trump administration mighthave been welcomed by Israel and Saudi Arabia, U.S. allies in the Middle East, which regard Iran as
the greatest threat or rival to them. If the next U.S. administration launches talks with Iran over thenuclear deal, the Middle Eastern power balance may greatly change. Such change may be a grave
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matter of concern to Israel and Saudi Arabia. Middle Eastern oil producing countries including Saudi
Arabia may have to reconsider their oil policies or strategies with Iran’s possible oil export
resumption in mind. From the second half of 2021, a new variable factor may emerge for the oilmarket stabilization, becoming a challenge for OPEC leader Saudi Arabia. As major countries
declare carbon neutral status targets amid stagnant oil demand under the COVID-19 pandemic, theinternational oil market is plagued with increasing challenges and growing uncertainties. What
policies the next U.S. administration would take on Iran and for the stabilization of the Middle Eastand what impacts they would exert on the world may become a great matter of interest from 2021.

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