US Maximum Pressure Policy, Landslide Changes in Oil Market and Iran's Proactive Regional Policy

  July 06, 2021   Read time 1 min
US Maximum Pressure Policy, Landslide Changes in Oil Market and Iran's Proactive Regional Policy
During the post-Islamic Revolution period, several developments of considerable importance to Iran have occurred in, or in relation to, the world oil market. First, with weakening bipolarity there has been a corresponding increase in the 'directness and intensity' of US military involvement in the Gulf."

The US has replaced its traditional Gulf policy of fostering a 'balance of power' with a policy of 'dual containment'. That is to say, US Gulf policy has aimed to isolate Iran as well as Iraq in order to minimise the likelihood that either state will emerge as the hegemon of the Gulf. These measures arise directly from the continuing US strategic interest in maintaining access to oil.

Second, the world oil market has been operating at chronic excess capacity. Threatening to compound this situation is the imminent return to full production of Kuwait, the eventual re-entry into the market of Iraq, and the possible development of the production capacities of the Soviet successor states. This has posed a difficult challenge for OPEC, an organisation already weakened by its members' failure to adhere to agreements. In addition, the low price of oil makes it increasingly difficult for producer governments to keep pace with the needs of growing populations and the growth of popular expectations. As will be shown, these market conditions are particularly burdensome to Iran.

A third change in the global oil-politics relationship is 'environmental activism' aimed at encouraging oil conservation. Environmentalists have, for example, advocated the imposition of energy taxes (e.g., the proposed EC carbon tax), recommendations which have enervated oil exporters, including Iran, who worry that reduced demand will 'threaten the viability of their investments in capacity expansion' .

Fourth, the combination of global recession and the restructuring of the world financial system has caused commercial banks to withdraw lending. Related to this, multinational oil companies have reduced capital spending to raise production capacity in anticipation of projected increased global energy demand (especially for natural gas) early in the next century. Gulf producers, impelled by mounting domestic pressures to expand capacity yet constrained by their own capital deficiencies, are increasingly willing to solicit, but unable to attract, foreign investment. Thus, producers' prospects for capitalising on favourable long-term energy conditions are bedevilled by unfavourable short-term investment conditions.

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