Who will control Chabahar? India or China

Early this month, I had posted a blog “India to begin full-scale operations at Iranian port Chabahar in May 2021”. I had stated, “Indian US$500 million investment represents a clear and potent commercial challenge to China’s massive port investment in Gwadar port located in Pakistan, a key component of Beijing’s Belt and Road Initiative (BRI).” 

Today, I am posting excerpts from an interview of Behrouz Aghaei, Director General, Ports and Maritime Department, Sistan-Baluchestan province of Iran.

Following are the key takeaways:

Iran calls Chabahar port the “Gate of Nations” and that is an indication of its view about this port’s future. Chabahar is going to be one of the top trade hubs in the region, linking the West Asian nations to CIS countries.

Not only China, but any other country that is willing to invest in Chabahar is welcomed by Iran provided that the economic independence of the port and the interests of the Islamic Republic are ensured.

Being Iran's only oceanic port on the Gulf of Oman, Chabahar holds great significance for the country both politically and economically. Iran has taken serious measures for developing this port in order to improve its maritime trade.

The first and most important issue that the Ports and Maritime Organization (PMO) has taken into account when considering investment offers by foreign trade partners, is the port’s economic independence.

India currently works with Iran as an operator in this port and the country does not have an exclusive right over any part of this port.

Iran welcomes other countries to come and participate in the development of this port beside India.

Iran has been welcoming investors from all over the world to take part in the development of this port and benefit from its distinguished position as a trade hub in the region.

The recent agreement between Iran and China has increased the chances of this giant economy participating in the development of this port and to further contribute to the improvement of its global status.

China’s contribution to the development of Chabahar port would be a great opportunity for this port to further establish itself as a trade hub in the region since China is currently one of the world’s most advanced countries in terms of maritime and port industries.

Three of the world’s top shipping companies and operators are Chinese companies, for instance, COSCO is currently the world’s fourth-biggest shipping line which is operating at 45 ports worldwide.

China's entrance into Chabahar port could lead to significant growth in this port because shipping lines and operators play a key role in the development of a port.

The activity of Chinese shipping lines in Chabahar port could increase the port’s trade exchanges with the world to a very significant level.

China is currently having maritime trade exchanges with over 162 countries worldwide and the activity of Chinese renowned shipping lines in Chabahar port would mean linking of the port to more than 45 ports and over 162 countries.

China plays a key role in the development of container ports around the world. Six of the world’s top 10 container ports are in China which means about 60% of the world’s container operations are taking place in this Asian country.

Research shows that the Chinese ports are going to register the world’s largest growth in terms of container trade by 2024.

Mari Petroleum offers enormous upside potential

Mari Petroleum (MARI), a leading exploration and production company of Pakistan offers an upside potential on the expectation of dividend payout after the removal of cap by the government. 

Other contributing factors are: 1) stable and growing volumetric sales from Mari Habib Rahi Limestone (HRL) field, 2) likely entry into other possible energy/gas chain projects, 3) healthy cash generation as it is least affected by circular debt and 4) favorable shift in gas pricing.

Stable and growing volumetric sales: 

Gas production from Mari field has grown at a 5-Y CAGR (FY16-FY21) of 3% compared to annual natural decline rate of 5-6% of a gas field. This growth is attributed to continuous efforts to keep production above the threshold of 577.5 mmcfd (+10% of 525 mmcfd) by drilling more development wells and adapting various production enhancement techniques like acid simulation, debottlenecking activities, compression installation amongst others.

Removal of cap on dividends: 

The government has removed cap on dividend payout of the company in wake of likely divestment to attract a better price. Analysts consider this as a positive development as high cash generation capability (12% of market cap every year) of the company can attract more strategic investors. The Company is expected to maintain payout ratio of 60%, translating into decent D/Y of 8-11% in next four years.

Likely entry into other energy chain projects: 

The company is taking service of renowned consultancy firm Mckinesy and other energy sector consultants to evaluate and consider projects like offshore blocks, acquisition of international blocks, setting up LNG terminal, gas power plant, expanding into fertilizer business, renewable power plants and petrochemical plant. It is believed that capital will not be a constraint for the company for projects like petrochemical and fertilizer due to healthy existing cash balance and recurring cash generation.

Healthy cash generation: 

Over the last two years (FY19 and FY20), the Company has accumulated a cash balance of Rs35 billion due to healthy operating cash flows thanks to rising profits and lower link with circular debt. This has increased book value of the company to Rs822/share as of December 2020, from Rs302 as of June 2018), translating into net cash of Rs446/share.

Favorable shift in gas pricing:

In FY20, the Company had recorded 35% of its revenue from fields (including incentive) based on PP2012 policy. Pricing based on PP2012 policy is 3x higher than the prevailing 2001 pricing policy (50% of 2001) of the Company. In FY17, revenue based on PP2012 used to be 5-10% of total revenue.

CAGR: 

Analysts expect MARI to post 3-Year earnings CAGR of 10% on the back of 2.2% per annum growth in gas sales, PKR depreciation of 5-6% per year, and 1.9% per annum growth in oil prices assumption.

Valuation: 

Analysts have used reserves based discounted cash flow methodology to arrive at December 2021 Target Price of Rs2,103, providing a total return of 41% (including D/Y of 9%). The Company is currently trading at FY22E PE, EV/Reserve (boe) and EV/EBITDA of 5.5x, US$1.4 and 2.9x, respectively.

Key risks:

The key risks include: 1) The Company’s inability to complete debottlenecking and other production enhancement projects on time, 2) lower than expected oil prices, 3) change in pricing regulations and 4) PKR appreciation.

Pakistan awards exploration blocks to state-run Exploration & Production companies

Reportedly, the Government of Pakistan has awarded six petroleum exploration blocks in Sindh, Baluchistan and Punjab to state-run oil and gas exploration and production companies.

The exploration licences (ELs) and petroleum concession agreements (PCAs) were signed by Petroleum Secretary and Director General of Petroleum Concessions on behalf of the GoP and Managing Directors of Oil and Gas Development Company (OGDCL), Mari Petroleum Company (MPCL) and Pakistan Petroleum at a ceremony witnessed by newly appointed Minister for Energy.

These included Block No. 3068-6 (Killa Saifullah) and Block No. 3067-7 (Sharan) in Baluchistan with OGDCL and MPCL; Block No. 3069-9 (Suleiman-Balochistan) with OGDCL and PPL; and Block No. 2467-17 (Sujawal South) in Sindh, Block No. 3273-5 (Jhelum) and Block No. 3272-16 (Lilla) with OGDCL.

Director General, Petroleum Conces­sion reported that minimum firm work commitment for these blocks was US$24.68 million for a period of three years. The companies are obligated to spend a minimum of US$30,000 per year in each block on social welfare schemes. Annual social welfare obligation in respect of these six blocks is US$180,000.

The Killa Saifullah block covering an area of 2421.96 sq-km is located in Killa Saifullah district, while the Sharan block covering an area of 2497.89 sq-km is situated in Killa Saifullah and Zhob districts. The Suleiman block covering an area of 2172.89 sq-km is located in Musakhel, Zhob, Killa Saifullah and Loralai districts. The Sujawal South block covering an area of 1914.1 sq-km is located in Sujawal district of Sindh. The Jhelum block covering an area of 1524.65 sq-km is located in districts of Jhelum, Gujrat and Mandi Bahauddin, while the Lilla block covering an area of 2361.12 sq-km is situated in Chakwal, Jhelum and Khushab districts.

OGDCL is a public limited company engaged in exploration and production (E&P) activities in the country for the last four decades. The Company holds the largest share of 41% in oil and 36% in gas out the total reserves in the country. Its percentage share of total oil and gas production in Pakistan is 47% and 29%, respectively. OGDCL is the operator of 41 exploration licences and working interest owner in six other exploration blocks operated by various E&P companies. OGDCL is currently produces 35,805 barrel oil per day (bopd) oil, 1,012 million cubic feet per day (mmcfd) gas, 761 tons LPG and 53 tons of sulphur per day.

PPL is also a public limited company engaged in exploration and production activities in the country. It is Pakistan’s oldest and largest E&P Company incorporated in 1950. Its percentage share of total oil and gas production in Pakistan is 13% and 19%, respectively. PPL is the operator in 26 exploration licences and working interest owner in 17 other exploration blocks operated by various E&P companies. PPL currently produces 10,076 bopd Oil, 673mmcfd gas and 238 million tons LPG.

Mari Petroleum is an integrated exploration and production company currently managing and operating Pakistan’s largest gas reservoir at Mari gas field in Daharki, Sindh. MPCL is the second largest gas producer in the country with 753mmcfd gas and 1,722bopd oil. MPCL is the operator in six development and production leases, 11 exploration licences and working interest owner in seven other exploration blocks operated by various E&P companies.

The Energy Minister expressed the hope that licences would benefit the country in the form of additional hydrocarbon reserves over the next few years. He said the execution of ELs and PCAs would not only enhance investment in the petroleum sector but also contribute to bridging the gap between demand and supply of energy in the country.

Repatriation of Afghan Refugees

Turkey, Pakistan and Afghanistan have issued a joint statement appreciating Iran’s role in hosting refugees amid renewed efforts to establish peace in Afghanistan. The joint statement was adopted at the conclusion of a trilateral meeting of the foreign ministers of Turkey, Afghanistan and Pakistan held in Istanbul.

The three foreign ministers “acknowledged the role of the regional and neighboring countries, in particular Pakistan and Iran in hosting Afghan refugees for more than four decades and called for creating conducive conditions in Afghanistan for their voluntary, safe, dignified, expeditious and sustainable repatriation through a well-resourced plan,” according to the joint statement.

The foreign ministers “urged international community to continue to assist host countries in taking care of the essential needs of Afghan refugees and to provide support to the repatriation and reintegration efforts of the Government of Afghanistan,” the statement noted.

Turkish Foreign Minister Mevlut Cavusoglu, Afghan Foreign Minister Mohammad Haneef Atmar, and Pakistani Foreign Minister Shah Mahmood Qureshi held a trilateral meeting on Afghanistan in Istanbul on 23rd April 2021.

They discussed the prospect of advancing the Afghan peace process ahead of a high-level meeting expected to take place in Istanbul. They said the Istanbul Conference is “aimed at giving momentum to the ongoing Afghanistan Peace Negotiations.”

The three foreign ministers noted that the Istanbul Conference had been postponed after extensive discussions with all relevant parties with a view to holding the conference when conditions for making meaningful progress would be more favorable.

The Afghan peace talks are not moving smoothly. The talks were due to go ahead on 24th April and run through 4th May, known officially as the Istanbul Conference on the Afghan Peace Process, and the co-conveners said they were committed to supporting a “sovereign, independent and unified Afghanistan,” according to the UN.

But the talks were postponed. Iran had said it will attend the Istanbul meeting provided that the Islamic Republic’s principles are observed.

“We carefully examine the issues related to this matter. Iran has always stood by the government and people of Afghanistan,” Iranian Foreign Ministry spokesman Saeed Khatibzadeh said.

He added, “For us, a stable and completely secure Afghanistan is a high priority. As we have said before, we emphasize that the Afghan peace dialogue should be an inter-Afghan dialogue, and Iran has always been prepared as a neighbor to make every effort to achieve this.”

The foreign ministers of Turkey, Pakistan and Afghanistan also recognized that sustainable peace can be achieved only through an inclusive Afghan-led and Afghan-owned political process that aims for a permanent and comprehensive ceasefire along with an inclusive political settlement to end the conflict in Afghanistan.

Diplomatic efforts by regional countries to establish peace in Afghanistan have intensified in the past few weeks as the United States announced that it will withdraw its troops from Afghanistan by 11th September, causing concerns over further instability in the war-torn country.

These efforts were done against a backdrop of international debate over the United States’ upcoming withdrawal from Afghanistan. US President Joe Biden announced last week that the U.S. should end “forever war” in Afghanistan.

“We went to Afghanistan because of a horrific attack that happened 20 years ago. That cannot explain why we should remain there in 2021,” the US president said. “We were attacked, we went to war with clear goals,” he noted. “We achieved those objectives. Bin Laden is dead and al-Qaida is degraded in Afghanistan, and it's time to end this forever war.”

US intelligence agencies suffering from Iran phobia

The Annual US Intelligence Assessment reported that Iran has not taken the steps necessary to produce a nuclear weapon, but it also warned that the Islamic Republic might expand its nuclear program if the United States does not lift sanctions.

“Iranian officials probably will consider options ranging from further enriching uranium up to 60% to designing and building a new 40-Megawatt Heavy Water reactor,” the report released by the Office of the Director of National Intelligence (ODNI) stated.

 The following are excerpts from the ODNI report.

US Interest

 “With regards to the US interests in particular, Iran’s willingness to conduct attacks probably will hinge on its perception of the United States’ willingness to respond, its ability to conduct attacks without triggering direct conflict, and the prospect of jeopardizing potential US sanctions relief.”

“Iran remains committed to countering US pressure, although Tehran is also wary of becoming involved in a full-blown conflict.”

“During the past several years, US law enforcement has arrested numerous individuals with connections to Iran as agents of influence or for collecting information on Iranian dissidents in the United States, and Iran’s security forces have been linked to attempted assassination and kidnapping plots in Europe, the Middle East, and South Asia.”

Weapons programs

Nuclear

"We continue to assess that Iran is not currently undertaking the key nuclear weapons-development activities that we judge would be necessary to produce a nuclear device. However, following the US withdrawal from the JCPOA agreement in May 2018, Iranian officials have abandoned some of Iran’s commitments and resumed some nuclear activities that exceed the JCPOA limits” said report.
 “Regime leaders probably will be reluctant to engage diplomatically in talks with the United States in the near term without sanctions or humanitarian relief or the United States rejoining the Joint Comprehensive Plan of Action (JCPOA). If Tehran does not receive sanctions relief, Iranian officials will probably consider options ranging from further enriching uranium up to 60 percent to designing and building a new 40 Megawatt Heavy Water reactor.”

Missiles

“Iran demonstrated its conventional military strategy, which is primarily based on deterrence and the ability to retaliate against an attacker, with its launch of multiple ballistic missiles attacks on a base housing US forces in Iraq in response to the January 2020 killing of Iranian Islamic Revolutionary Guard Corps Qods Force (IRGC-QF) Commander Qasem Soleimani. Iran has the largest ballistic missile force in the region, and despite Iran’s economic challenges, Tehran will seek to improve and acquire new conventional weaponry.”

Regional goals

Afghanistan

“Iran publicly backs Afghan peace talks, but it is worried about a long-term US presence in Afghanistan. As a result, Iran is building ties with both the government in Kabul and the Taliban so it can take advantage of any political outcome.”

Iraq

“Iran will remain a problematic actor in Iraq, which will be the key battleground for Iran’s influence this year and during the next several years, and Iranian-supported Iraqi Shia militias will continue to pose the primary threat to US personnel in Iraq.”

Israel

“Tehran remains a threat to Israel, both directly through its missile forces and indirectly through its support of Hizballah and other terrorist groups.”

Lebanon

“We expect Hizballah, in coordination with Iran and other Iran-aligned Shia militants, to continue developing terrorist capabilities as retaliatory options, and as instruments of coercion against its adversaries.”

Syria

“Iran is pursuing a permanent military presence and economic deals in Syria as the conflict winds down there.”

Yemen

"Iran will remain a destabilizing force in Yemen, as Tehran’s support to the Huthis—including supplying ballistic and cruise missiles as well as unmanned systems—poses a threat to US partners and interests, notably through strikes on Saudi Arabia."

Tactics

Assassinations

“We assess that Iran remains interested in developing networks inside the United States—an objective it has pursued for more than a decade—but the greatest risk to US persons exists outside the Homeland, particularly in the Middle East and South Asia. Iran has threatened to retaliate against US officials for the Soleimani killing in January 2020 and attempted to conduct lethal operations in the United States previously.”

Cyber Attacks

“Iran’s expertise and willingness to conduct aggressive cyber operations make it a significant threat to the security of US and allied networks and data. Iran has the ability to conduct attacks on critical infrastructure, as well as to conduct influence and espionage activities.”

Disinformation

 "We expect Tehran to focus on online covert influence, such as spreading disinformation about fake threats or compromised election infrastructure and re-circulating anti-US content. Iran attempted to influence dynamics around the 2020 US presidential election by sending threatening messages to US voters, and Iranian cyber actors in December 2020 disseminated information about US election officials to try to undermine confidence in the US election."

United States allows antitrust suits against OPEC members to subjugate Saudi Arabia

In my previous blogs I have often highlighted that the Organization of the Petroleum Exporting Countries (OPEC), remains subservient to the United States. OPEC’s decisions to raise price or to enhance production quotas are dictated by the US President and/or US administration.

Kindly, allow me to say that Americans are most unthankful nation; they never spare a chance to influence OPEC decisions. To put Saudi Arabia, often termed defecto leader of the cartel, under further pressure, a House panel in the United States has passed a bill to open the OPEC oil production group and countries working with it to lawsuits for collusion in boosting petroleum prices. However it was uncertain whether the full chamber would consider the legislation or not.

In one of my previous blogs, “An agreement signed with United States in 1945 will continue to haunt House of Saud forever”, I had referred to an agreement signed in 1945 between President of United States, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, which defined the relationship between the two countries for the years to come. 

The deal that was struck between the two men at that time was that the US would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the US would guarantee the security of the ruling House of Saud.

The deal was altered slightly since the rise of the US shale oil industry. The US also expects the House of Saud to not only supply the US with whatever oil it needs for as long as it can but also that it will also facilitate the US shale industry to continue to function and to grow.

The NOPEC bill, introduced by Representative Steve Chabot, a Republican, passed on a voice vote in the House Judiciary Committee. It would allow the US Justice Department to bring anti-trust lawsuits against oil-producing countries in the Organization of the Petroleum Exporting Countries (OPEC).

Similar bills to pressure OPEC when oil prices are on the rise have appeared in Congress without success for more than 20 years.

"It's high time that we do more to fight ... production controls that continue to keep the price of crude oil and gasoline arbitrarily high in the United States," Chabot told the committee before the vote.

Oil prices have risen about 33% this year and on Tuesday hit the highest level in a month, above US$68 a barrel for Brent international crude. But that was well below the level of more than US$100 a barrel in 2008 when a similar bill passed in the full House.

The rise came despite a deal OPEC+, a group consisting of OPEC members, Russia and their allies, struck this month to gradually ease oil output cuts from May, as economies recover from the global pandemic. The deal came after US Energy Secretary Jennifer Granholm called on top OPEC producer Saudi Arabia to keep energy affordable for consumers.

A similar bill to pressure OPEC was reintroduced in the Senate last month, by Republican Senator Chuck Grassley, a supporter of ethanol, a motor fuel additive made from corn, and Democrat Amy Klobuchar. To become law, a bill would have to pass both chambers in Congress and be signed by President Joe Biden.

Why United States has lost almost every war?

Since the World War II, the United States has lost almost every war that it has initiated in a developing country. This symbolizes the tragedy of super power’s incapability. 

The US is bowing out without having achieved its original objectives. The withdrawal also poses serious consequences for Afghanistan, the region and NATO’s reputation.

After the Vietnam fiasco and the Iraq debacle, as well as the example of the Soviet defeat in Afghanistan, the US and its allies should have been wiser in their choice of intervention, but Afghanistan’s case clearly demonstrates the opposite. These interventions have been driven by the view that the super power has the necessary military power to easily overwhelm an enemy, which has turned out to be untrue.

Washington’s planners may have proved very effective in invading a country, but have been defeated invariably in every war. Four interrelated themes explain America’s failure in these three countries.

First, Washington’s inability to comprehend the complexity of the country it has invaded and the region. The US may have been good at overthrowing governments but has no idea when it comes to their replacement. The US invades without a clear and deep understanding of the very complicated nature of their societies and intricacies of their neighborhoods.

Second, the US hasn’t been able to secure a credible and effective partner on the ground in the invaded country. This was true in South Vietnam and has been also the case with Iraq and Afghanistan. Every leader and government that the US has backed in these countries has proved to be incompetent, manipulative, unpopular and incapable of generating national unity.

Third, US hasn’t been able to sell its invasions and fulfill its original promises to the people of these countries. The disillusionment in the invaded countries and in the US has undermined its war efforts.

Fourth, Washington has learned little or nothing from its past experiences: it is not well equipped or suited for fighting national insurgencies. The insurgents have shown the staying power to exhaust the US.

All of these issues have come together to demonstrate why America’s Afghanistan adventure has failed.

President Joe Biden’s declaration to withdraw troops is a clear admission of defeat. He is doing what his predecessor and long-standing critic of the Afghan war Donald Trump had set out to do.

The tragedy is that the withdrawal follows very high human and material costs for the US and its allies as well as for the Afghan people. The war has over US$2 trillion.

Afghan’s human and property losses have been far greater. Current estimates put the number of civilians and security service men and women killed at more than 100,000, with many more injured and displaced.

All the promises made initially by President George W. Bush to free Afghans and to transform the country into a stable, secure, prosperous democracy seem farther from the reality.

The US and its allies will leave behind a broken Afghanistan, just as the US left South Vietnam and Iraq. With no political settlement or ceasefire in place Taliban have already clinch victory.

Taliban are now well positioned to get control over Kabul, but the takeover will not be the end of the Afghan conflict. On the contrary the conflict will continue with more suffering for the poor Afghans.

Bennett getting ready to replace Netanyahu as Prime Minister

Yamina leader, Naftali Bennett revealed for the first time on Wednesday that he was prepared to form a national unity government, if Prime Minister Benjamin Netanyahu fails to build a coalition by the 4^th May 2021 deadline. 

Bennett said a right-wing government was still his preference, but if it was not possible, he would make every effort to build a unity government that conforms to his values. He said he would first do everything possible to enable Netanyahu to build a coalition, whose failure to be built until now - he said - was the fault of Religious Zionist Party head Bezalel Smotrich.

Responding for the first time to Netanyahu's call for direct elections for prime minister, Bennett called the idea "throwing billions in the trash" and accused Netanyahu of "holding Israel hostage" and being ready to take Israel to a sixth and seventh election. Without the support of Yamina, there is no majority for the direct elections bill. 

"Israel needs a functioning, stable government immediately," he said. "The people of Israel are sick of fighting and want a government that works for them."

Netanyahu responded by accusing Bennett of "doing everything possible to prevent the formation of a right-wing government and instead completing a deal on a government with Yesh Atid leader Yair Lapid, with the support of the Joint List, despite having only seven seats. 

"This spits in the face of democracy," said Netanyahu, who accused Bennett of being "ready to assassinate the Right."

Netanyahu said a Bennett-led government would not be able to resist international pressure on Iran and other key issues.

Responding to questions about whether he would head the opposition if he fails to form a government, Netanyahu said "I am not resigning" and "We are doing all we can so we won't be in the opposition."

Netanyahu said clearly for the first time that he is not considering trying to succeed Reuven Rivlin as president. 

"I am not interested in being president and never was," he said. 

Mocking Netanyahu for talking about breaking promises and deceiving the public, Lapid wrote on Twitter "there is no limit to swindling." Lapid said no one believes Netanyahu's empty promises anymore and that the solution is a unity government. 

Channel 13 reported on Wednesday night that one of the major fights preventing a deal between Lapid and Bennett is that Bennett wants  New Hope head Gideon Sa'ar to be defense minister and Lapid wants someone less right-wing. 

In an effort to advance his direct election for prime minister idea, Netanyahu spoke on Wednesday with the heads of Ra'am (United Arab List), Labor, Meretz and Blue and White. All except the Ra'am head Mansour Abbas, who is undecided, told Netanyahu they opposed the idea. 

Another idea raised in Netanyahu's circles, that Knesset Speaker Yariv Levin serve as prime minister for a year, was dismissed on Wednesday by Netanyahu and by top officials in Likud.

Former Jerusalem mayor Nir Barkat promised on Wednesday that he will be the successor of Netanyahu.

Speaking at a conference of the Association of Municipal Corporations Conference at the Herod's Hotel in Eilat, Barkat called on Bennett and Sa'ar to join a Netanyahu-led government. But he also spoke about the future of his Likud party if Netanyahu does not form a government by the 4^th May deadline.

"If the prime minister decides to resign [from the chairmanship of Likud], I will of course enter the race for prime minister and I will win," Barkat said.

Return of Iran to oil market doesn’t pose any threat to producers

The ongoing JCPOA discussions are being watched by international oil markets closely. The possibility of Washington rejoining the international Iranian nuclear agreement is still in doubt, but the Biden Administration appears to be considering the move. Iran has indicated that it will only rejoin JCPOA if US sanctions on its main economic sectors, namely oil and gas, are lifted.

Some of the analysts are worried about the possible negative repercussions of Iranian oil on global oil supply and oil prices. The current global oil market is gaining stability, but a complete recovery is far from certain. It is only due to Saudi Arabia’s actions that markets have been able to rebound.

One of the main reasons Saudi Arabia has been able to make these unilateral production cuts is that other producers have been kept out of the market. Both Iran and Venezuela have seen their production constrained by international sanctions, while Libya and Iraq are suffering from internal conflicts.

Without these players in the market, Saudi Arabia is able to successfully control oil markets. The lifting of Iranian sanctions under JCPOA deal worries Arab producers, US shale, and Russia. These worries can be termed ‘unfounded’.

Some analysts argue that a JCPOA success could destabilize oil and gas markets, increase price volatility, and even see a return of oil gluts. There is a major flaw in this narrative because it is based on the assumption that the sanctions have successfully removed Iranian oil from markets. It is certainly true that Iranian volumes are no longer at historic highs, but looking at volumes reaching markets, Iranian oil is still very visible.

Oil and tanker trackers have been showing again and again that Iranian oil exports are not only very flexible, but also increasingly aggressively. The IEA reported that China never completely stopped its purchases of Iranian oil. The OECD energy watchdog also said that Iran’s estimated oil sales to China in the fourth quarter of 2020 were at 360,000 barrels a day (bpd), up from an average of 150,000 bpd shipped in the first nine months of last year.

Just before the JCPOA discussions restarted, Iran increased exports to China to around 600,000 bpd. OPEC also reported that Iran's crude oil output increased in March 2021 by 6.3%. OPEC report published lately showed that Iran’s crude output had surged by 137,000 bpd. OPEC data also showed that Iran’s average output in 2020 hovered at 1.985 million bpd, down from 2.356 million bpd recorded in 2019 and 3.553 million bpd in 2018. Major Asian clients in China, India, and elsewhere are much too happy to take Iranian volumes based on their very low price. To forget or diminish the role of Iranian oil at present in the market is a major error.

A JCPOA success would not only threaten oil prices, but could also lead to an increase in Tehran’s revenue base. Currently, Iranian oil export successes are based on illegally or partly “not-known” sales to customers, at lower prices but still generating cash. If sanctions on oil exports are removed, Tehran won’t only see higher export volumes but it will also stop selling its crude at a discount. Iranian oil could, and most probably will, be priced at normal market price levels.

In the short term, a potentially higher revenue stream could be generated, based on higher volumes. At the same time, Tehran should take into account the fact that customers will not be willing maybe to take Iranian volumes at higher prices. The current demand-supply situation doesn’t allow for millions of additional barrels to hit the market.

In the coming months, Iranian volumes will not increase at all, regardless of how successful the JCPOA discussions are.  With overall Iran oil export potential of around 2 million bpd, current exports are estimated around one million bpd, the markets will not be shocked. Demand is still weak, and it is being threatened again as COVID’s 3rd wave in Europe is blocking the opening of markets, and Asia’s emerging giant India is recording an increase of COVID casualties. 

Iran’s oil potential and exports are unlikely to derail the market. Looking at the OPEC plus strategies and cohesion, another one million bpd on the market coming from Iran will not be a shock to the system. The market is not able to take more volumes, while Iranian clients are unlikely to be willing to increase costs. It will be interesting to watch how investors decide to price these events into oil markets. Looking at the current fundamentals, OPEC plus leaders are still the real power players in the oil market.

Can Saudi Arabia and Iran ever initiate direct military confrontation?

Relations between Iran and Saudi Arabia have been tense ever since the establishment of the Islamic Republic back in 1979. Creation of Gulf Cooperation Council (GCC) and support for Iraqi dictator Saddam Hussein’s regime during its 1980-1988 war with Iran became a big thorn. Ties were further strained in 1987 after the massacre of over 400 Iranian pilgrims by Saudi security forces in the holy city of Mecca.

In 2011, as the Arab Spring spread across the Middle East, the breach of mistrust between Tehran and Riyadh grew wider. The civil wars in Syria and Yemen pushed the two sides into indirect military confrontations. Execution of Shiite cleric Sheikh Nimr al-Nimr by Saudi Arabia further worsened the situation.

Indeed, Saudi Arabia’s decision to cut ties with Iran after its diplomatic facilities were stormed by Iranian protesters, with countries such as Sudan, Somalia, Bahrain and Djibouti soon following suit, brought about a novel state in the Iranian-Saudi relationship. In this atmosphere, analysts sat with crossed fingers, exploring can Tehran and Riyadh ever initiate direct military confrontation? Likely the answer was clear; there can’t be a war between Iran and Saudi Arabia, for five main reasons.

First, the administration of Iranian President Hassan Rouhani is pursuing a policy of constructive engagement with the world, the reason Iranians elected him in 2013. In Iran’s complicated political system, the executive and legislative branches are elected by popular vote; though the Guardian Council’s vetting of candidates makes the elections process not entirely free. Within this political system, making a decision to engage in war is not an easy task. Therefore, while some Saudi leaders may beat the drums of escalation, the possibility of outright war depends on factors such as whether there is political will for such action and how the two countries choose to handle the crisis in their relations. Engaging in war is not something that can be done by one side alone. Moreover, Iran’s government has no incentive to increase tensions, as evidenced by the condemnation of the attack on the Saudi Embassy in Tehran by the triangle of power in Iranian foreign policy, meaning Supreme Leader Ayatollah Ali Khamenei, Rouhani and Foreign Minister Mohammad Javad Zarif. In a goodwill effort, Iran also announced that it will continue to send pilgrims to Saudi Arabia. Thus, if Saudi Arabia intends to initiate war, the Iranian public — seeing themselves as victims of a violation — will mobilize, and also gain the sympathy of the international community.

Second, the majority of Iran’s current leaders was involved in war with Iraq and is fully aware of its costs. Rouhani held several military positions during the conflict, while Zarif and his deputies also remember the hardships of that era in their capacity as diplomats. Khamenei, who was president at that time, also served as chairman of the Supreme Defense Council, while Rafsanjani served as the de facto commander-in-chief of the Iranian military. Even Iran’s parliament speaker, Ali Larijani, served as a commander with the Islamic Revolutionary Guard Corps (IRGC). Larijani’s brothers, including incumbent Judiciary Chief Sadegh Larijani, were also involved in the conflict. Many other influential Iranian figures, including a great number of parliamentarians and Friday prayer leaders, also have bitter memories of war. Although the IRGC at times seems to favor showdowns — such as in the cases of the recent detention of US sailors or its surveillance of the aircraft carrier USS Harry Truman in the Persian Gulf — it is not empowered to take arbitrary actions.

Third, the very nature of the current crisis makes war unlikely. According to Charles Hermann, a renowned analyst of issues related to US foreign policy, crisis management and decision-making, what defines a crisis are the three elements of threat, time and surprise. Whether the situation threatens the vital interests of a state allows only a short time for decision-making, and whether it occurs as a surprise to policymakers must all be considered. When it comes to Iran and Saudi Arabia, the nature of their crisis does not meet these criteria. In fact, Saudi Arabia’s tone against Iran has even softened in recent times. Indeed, Saudi Crown Prince Mohammad bin Salman told The Economist, “Whoever is pushing toward [war with Iran] is somebody who is not in their right mind.”

Fourth, on the international level, Saudi Arabia believes that in the event of a military confrontation with Iran, the United States and the rest of the West may side with the Islamic Republic. Riyadh’s decision to cut ties with Tehran has received virtually no international support aside from some African countries that play no significant role in international power equations. Even the then US Secretary of State John Kerry urged calm following the breakdown in the Saudi-Iranian relationship.

Last but not the least; victory is uncertain in a potential Iranian-Saudi war. Saudi Arabia and Iran may take destructive blows from each other, but both know that neither has the ability to destroy the other side or impose regime change. Saudi Arabia has more warplanes and modern military equipment, while Iran has better missile capabilities and military personnel. Riyadh’s involvement in the Yemen war is another factor that reduces the motivation for war with Tehran. Moreover, the population in Saudi Arabia’s oil-rich Eastern Province is mainly Shiite and has the potential to revolt — an advantage for Tehran that Riyadh cannot easily create for itself in Iran. Lastly, Iran’s control of the Strait of Hormuz, through which Saudi Arabia conducts much of its trade, is a further preventative factor, since war would necessitate redirecting all that trade to the Red Sea, which in the short run is just not possible.

Benjamin Netanyahu loses control of Knesset

Prime Minister Benjamin Netanyahu has lost control of the Knesset and may soon also lose the Prime Minister’s Office. Anti-Netanyahu bloc has defeated him in a key vote in the parliament on Monday, thanks to the support of the Ra’am (United Arab List) Party led by Mansour Abbas.

Netanyahu’s opponents succeeded in passing their proposal for control over the powerful Knesset Arrangements Committee, which runs the Knesset until a government is formed. The proposal of Yesh Atid faction chairman Meir Cohen passed by a vote of 60 to 51. Party sources said their victory came following a successful meeting earlier Monday between their leader, Yair Lapid, and Abbas.

“I am thankful to my partners,” Lapid wrote on Twitter. “The victory in the vote on the Arrangements Committee is another step on the way to a unity government in Israel.”

In exchange for his support, Lapid offered Ra’am a spot on the Knesset Finance Committee, chairmanship of a committee on fighting violence in the Arab sector and a deputy Knesset speaker post. But in an interview with Channel 12, Abbas said the posts did not influence his decision.

“We wanted to keep our role holding the balance of power in the Knesset and show we weren’t in anyone’s pocket,” said Abbas, who added he was also angered by the constant attacks on him by Religious Zionist Party leader Bezalel Smotrich, a key member of Netanyahu’s bloc.

Yesh Atid officials said their first goal would be to bring to a vote having Cohen replace Knesset Speaker Yariv Levin, who is the MK closest to Netanyahu. The Lapid bloc’s majority on the committee could help it advance anti-Netanyahu legislation, including a bill that would prevent a candidate who is under criminal indictment from forming a government.

The Arrangements Committee will decide the makeup of the temporary Foreign Affairs and Defense Committee and Finance Committee, which provide oversight over Netanyahu and his government. It will also appoint the Knesset speaker’s deputies, which will allow starting the process of electing a new president.

Netanyahu thought he would have a majority on the committee, due to an agreement between Likud and Yamina. According to the deal, Yamina would receive a second slot on the committee at the expense of Likud, in return for its votes. But then, the Ra’am MKs, who were angered by Netanyahu’s deal with Yamina, came into the plenum and defeated the Likud proposal by a vote of 60-58. That led to the vote on the anti-Netanyahu bloc’s proposal, which Yamina’s seven MKs did not attend.

Yamina leader Naftali Bennett has made a decision to “go with the Left,” Netanyahu said in a closed-door meeting with United Torah Judaism MKs on Monday at the Knesset.

He and Bennett held a tense meeting on Monday, their fifth since Netanyahu received a four-week mandate to form a government from President Reuven Rivlin two weeks ago.

“His feeling is that he has closed a deal over there,” a UTJ MK told The Jerusalem Post after the meeting with Netanyahu.

Earlier, Netanyahu told his Likud faction that a government led by Bennett, whose party has seven seats, would be “absurd.”

“The moment of truth for Bennett has arrived,” Netanyahu said. “He promised not to sit under Lapid, with Meretz and Labor and with the support of the Joint List. He must stop galloping toward a left-wing government.”

In the closed-door portion of the faction meeting, Netanyahu said that what his opponents call a unity government would only bring more governmental paralysis and would be “very bad for Israel.”

Abbas said on Monday that he does not rule out enabling a government led by Bennett, just like he would not rule out enabling a government led by Netanyahu. Speaking with the emblem of Israel behind him, he said it is wrong to call his faction’s MKs supporters of terror, as Smotrich has.

Smotrich meanwhile called on Bennett to decide whether he will be with the Right or the Left. He said he did not believe that Bennett really backs a government that would rely on Ra’am, which he said identifies with Israel’s enemies.

“As soon as it is clear where everyone stands, I am sure a right-wing government of the entire nationalist bloc can be formed,” Smotrich told his faction meeting.

New Hope leader Gideon Sa’ar told his faction that he would not enable Netanyahu to form a government, or initiate a new Knesset race or a direct election for prime minister.

Sa’ar spoke for the first time since Netanyahu called on him to “come home to Likud” in a speech in Ramat Gan on Friday.

“Our view hasn’t changed,” Sa’ar said. “There are two alternatives: A right-wing government led by someone else [besides Netanyahu] or a unity government that will allow New Hope to maintain its worldview. Both options are better than new elections, whether for the Knesset or just for prime minister.”

In an effort to build a coalition, Lapid met on Monday with the heads of Yisrael Beytenu, Labor, Meretz and the Joint List, as well as Ra’am.

Defense Minister Benny Gantz told his Blue and White faction that continued political uncertainty would be dangerous for Israel.

“If we don’t unite among us, we won’t be strong against our enemies,” Gantz said.

Is US opposition of Rampal coal plant due to love for Sundarbans or to keep India away?

During his six-hour trip to Dhaka on 9th April 201, US President Joe Biden’s special envoy for climate change, John Kerry, bluntly raised the Rampal coal based plant issue during his official talks with Foreign Minister AK Abdul Momen.

However, Kerry didn’t raise this issue in his talks with Prime Minister Sheikh Hasina. He did say in a general way that coal-fired power plants are one of the main causes of environmental damage. He drew attention to the US opposition to coal-fired power plants.

John Kerry raised the Rampal issue again towards the end of the talks. “Can I ask an outrageous question? Can you stop Rampal?”

At one point Kerry said that he was confused about Bangladesh’s stance on the Sundarbans. On the one hand it is taking steps to protect the forest, and on the other it is taking up projects like the Rampal coal-fired power plant. “How is this possible”, he asked.

John Kerry was told that Bangladesh has always given importance to environmental protection. Despite resource constraints, various steps have been taken to face the climate change challenge. The protection of the Sundarbans is being given due importance in the construction of the Rampal power plant.

Earlier in 2017, the former US Vice President, environmentalist Al Gore, had appealed to Prime Minister Hasina to halt the construction of the Rampal power plant.

Prime Minister Sheikh Hasina asked Al Gore to visit Bangladesh to see the Sundarbans and see if the project is harming the environment.

In 1997, the United Nations Educational, Scientific and Cultural Organization (UNESCO) declared the Sundarbans as a World Heritage Site.

UNESCO has been raising objections to the project since 2018. A study carried out by UNESCO and the International Union for Conservation of Nature (IUCN) on the project says that it will do irreparable harm to the Sundarbans. This may also cause the Sundarbans to lose its status as a World Heritage Site, UNESCO has repeatedly warned.

There seems also a split within Bangladesh.  The official version is, “The Bangladesh government has taken up various initiatives to protect the Sundarbans mangrove forests.” While some experts say that the power plant will put the mangrove forest at risk but the government is not paying attention to this issue.

It goes without saying that now financial and technical assistance for mega projects is driven by geopolitics rather that economic viability.  Based on this stance, I am ready to say that Bangladesh is being pressurized to give up this project, only because of Indian involvement.

The Bangladesh Power Development Board and India’s National Thermal Power Corporation are jointly constructing the 1,320 MW power plant at Rampal in Bagerhat, next to the Sundarbans.

Opponents of the plant go to the extent of saying that the technology used in the Rampal project is of low standard. They raise a question if in other countries coal-fired power plants are being closed down, why Bangladesh should go for this.

Supporters of the plant say, it is a reality that at present, work on the Rampal power plant has advanced considerably. The government would not be able to do anything about it now, even if objections are raised.

The Bangladesh Foreign Minister, Abdul Momen, highlighted the various steps taken by Bangladesh to tackle threats from climate change and to protest the Sunderbans.

US intelligence agencies playing mantra orchestrated by military complexes

I have often raised this point that the US foreign policy is driven by ‘military complexes’. The survival of these conglomerates is dependent on internal conflicts and proxy wars, often created and proliferated by the US intelligence agencies. 

If presence of weapons of mass destruction in Iraq was the biggest joke of the century, Iran getting ready to attack United States is another point to laugh. If you don’t agree with me read the highlights of ‘The Annual Threat Assessment Report’.

According to The Annual Threat Assessment Report – 2021 prepared by the office of the US Director of National Intelligence (DNI) and sent to Congress three major threats have been identified. These are: 1) China’s push for global power, followed by 2) Russia’s provocative actions and 3) threats from Iran.

DNI’s annual threat assessment reports are shared with congressional intelligence committees as well as the committees on the Armed Services of the House of Representatives and the Senate.

While assessing possible threats from South Asia, the report warned that “under the leadership of Prime Minister Modi India is more likely than in the past to respond with military force to perceived or real Pakistani provocations.”

The report noted that heightened tensions in the region raise the risk of conflict between the two nuclear-armed neighbors, with violent unrest in Kashmir or a militant attack in India being potential flashpoints.”

The report also said that a general war between India and Pakistan during 2021 was unlikely, but crises between the two are likely to become more intense, risking an escalatory cycle.”

Another US intelligence report to Congress, released last week, had warned that India and Pakistan could go to a war in the next five years over real and perceived provocations.

The report pointed out that some regional conflicts – such as the fighting in Afghanistan, Iraq and Syria – had “direct implications for US security,” while “tensions between nuclear-armed India and Pakistan remain a concern for the world.”

The report assessed the prospects for a peace deal between the Afghan government and the Taliban in 2021 as low. The Taliban are likely to make gains on the battlefield, and the Afghan government will struggle to hold the Taliban at bay if the coalition withdraws support, the report predicted. It also noted that Kabul continues to face setbacks on the battlefield, and the Taliban are confident they can achieve military victory.

Commenting on Iran’s role in Afghanistan, the report said that “Iran will hedge its bets in Afghanistan,” adding that “Iran publicly backs Afghan peace talks, but it is worried about a long-term US presence in Afghanistan.”

As a result, “Iran is building ties with both the government in Kabul and the Taliban so that it can take advantage of any political outcome,” the report added.