Saudis and Israelis don’t approve JCPOA talks

According to media reports, with Iran and world powers resumed nuclear talks, Saudi Arab and Israel also intensified consultations. Washington and Tel Aviv on the one hand and Washington and the Persian Gulf Cooperation Council on the other hand are having extensive talks. 

Both, Israel and Saudi Arabia wants to influence any US move to return to the 2015 Iran nuclear deal, which they have publicly opposed right from the beginning.

As the Iranian negotiating team head to the Austrian capital of Vienna, a senior Israeli delegation comprising of Mossad Chief Yosef Cohen, Head of Military Intelligence Tamir Hayman, and National Security Adviser Meir Ben-Shabbat also arrived in Washington for talks. Chief of Staff of the Israeli Army Aviv Kochavi was also supposed to join the delegation but the recent hike in Israel-Gaza tensions forced him to cancel his trip to Washington.

The visiting delegation met with several high-level Biden officials including National Security Adviser Jake Sullivan, Chairman of the Joint Chiefs of Staff Mark Milley and senior US military and intelligence officials. The focus of the conversations is squarely on the terms of the US return to the 2015 nuclear deal. 

Sullivan and Ben-Shabbat held their first in-person meeting since Joe Biden entered the White House. The US and Israeli officials discussed their serious concerns about advancements in Iran’s nuclear program in recent years. The United States updated Israel on the talks in Vienna and emphasized strong US interest in consulting closely with Israel on the nuclear issue going forward. The US and Israel agreed on the significant threat posed by Iran’s aggressive behavior in the region.

Following the meeting of Sullivan and Ben-Shabbat, the White House said the US and Israel agreed to establish a new group to counter Iran’s drones and missiles.

The United States and Israel agreed to establish an inter-agency working group to focus particular attention on the growing threat of Unmanned Aerial Vehicles and Precision Guided Missiles produced by Iran, claiming that these weapons are being provided to proxy groups in the West Asia region. 

Also US Special Envoy for Iran Robert Malley held talks with Saudi Foreign Minister Prince Faisal bin Farhan alongside officials from the countries of the Persian Gulf Cooperation Council (GCC). Malley said he discussed the Arab officials the situation around the JCPOA and the Vienna nuclear talks. 

The US discussions with Saudi Arabia aim to persuade them the US return to the 2015 nuclear deal will not harm their own interests. But this is exactly what the Obama administration told the Saudis and the Israelis after signing the JCPOA in 2015. Instead of supporting the deal, the Saudis and Israelis joined forces to kill the deal and the Trump came into power, they saw a new opportunity to scrub the deal. They may have even thought that the JCPOA would never be revived given the blows the Trump administration delivered to it. This may explain why they are so anxious about the JCPOA being revived after four years of anti-JCPOA rhetoric from Washington. 

If the Biden administration is really keen to revive the JCPOA, it needs to be aware of any possible unconstructive efforts on the part of the Saudis and Israelis because they have never been proponents of the deal and they are unlikely to change their mind just because there is a new president in the White House. Of course, they may stop short of calling on the Biden administration to refrain from rejoining the JCPOA but they will certainly ask the U.S. to at least make some amendments to the original deal, something that will be opposed by other signatories to the JCPOA namely Russia and Iran. 

Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, has recently said that the negotiators in Vienna have come to conclude that regional security and missile production are different from curbing Iran’s nuclear program.

Curbing Iran's nuclear program is a different matter from regional security and missile production. At the end of two rounds of talks in Vienna to revive the JCPOA, it was clear to all participants that only by reviving the original agreement could achieve the goals. No new terms or clauses needs to be added. Iran has strongly rejected any attempt to expand the JCPOA, while calling on the US to remove its sanctions. 

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.