Richard Nephew and Antoine Halff
Center on Global Energy Policy

On January 2, the United States carried out an attack in Baghdad against a convoy of vehicles that killed Qasem Soleimani, an Iranian general and head of Iran’s Islamic Revolutionary Guard Corps Qods Force. Iran retaliated for the attacks, launching ballistic missiles at Iraqi bases housing U.S. troops. The next morning, both sides indicated a desire to deescalate the conflict. 

Yet, while Iran and the U.S. have seemingly stepped back from the brink, it is far from clear Iran is done retaliating for Soleimani’s death, and a broader military conflict certainly remains a possibility, along with further attacks that may affect energy infrastructure.

In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by CGEP's Richard Nephew and Antoine Halff, who explain what led to this escalation with Iran, and what may happen next. Richard is a Senior Research Scholar at CGEP and the former Principal Deputy Coordinator for Sanctions Policy at the U.S. Department of State. In his prior role, Richard was instrumental in designing the sanctions regime against Iran, as well as the deal that lifted them, known as the Joint Comprehensive Plan of Action, which the Trump Administration has pulled out of. Antoine is an Adjunct Senior Research Scholar at CGEP, and former Chief Oil Analyst at the International Energy Agency. One of the leading oil market experts in the world, Antoine served as editor of IEA's flagship publication, the Oil Market Report. Before that he was Lead Industry Economist at the U.S. Energy Information Administration.

Jason sat down with Richard and Antoine yesterday to discuss the attack on Solemani, Iran’s response, and the potential impacts on geopolitics, energy markets, oil prices, energy security, and more.



Jason Bordoff:  On January 2nd, the United States carried out an attack in Baghdad against a convoy of vehicles that killed Qassem Soleimani an Iranian General Head of Iran's Islamic Revolutionary Guard Corps-Quds Force.  Iran retaliated for the attacks, launching ballistic missiles at Iraqi bases that have US troops.  The next morning, both sides seem to indicate a desire to de-escalate the conflict.  Yet while Iran and the United States have seemingly stepped back from the brink, it's far from clear Iran is done from retaliating for Soleimani's death, and a broader military conflict certainly remains a possibility, along with further attacks that may affect the energy infrastructure.  We're going to get into all of that today on Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University.  I'm Jason Bordoff, and I'm delighted today to turn for some expertise on all of these issues to two of my own colleagues here at the Energy Center, Richard Nephew and Antoine Halff.  Richard is a Senior Research Scholar at the Energy Center, a former Principal Deputy Coordinator for sanctions policy at the Department of State, in his prior role, he was instrumental in designing the sanctions regime against Iran, as well as the deal that lifted them known as the Joint Comprehensive Plan of Action, the JCPOA, which the Trump administration has pulled out of.  Antoine is an Adjunct Senior Research Scholar at the Energy Center, a former chief oil analyst at the IAEA, one of the leading oil market experts in the world, he served as editor of the IAEAs flagship publication, the oil market report.  Before that he worked in industry and at the US Energy Information Administration.  Richard and Antoine, thanks for joining me here at our offices today in New York.



Richard Nephew:  Thanks for having us.



Antoine Halff:  Yeah, thank you.



Jason Bordoff:  So let's start.  I want to start by talking a little bit about the conflict, how we got to where we are and then Antoine let's talk about what it means for oil market.  So Richard, let me start with you, quickly because I think people have been reading about this for a while now, but who is Qassem Soleimani, why is he a target and how important is this to the United States and talk about how it is received in Iran?



Richard Nephew:  Yeah, Qassem Soleimani, if you want to be very simple about it was the head of everything bad in the line that Iran is doing both in the region as well as abroad.  He was in charge of the Quds Force, which is essentially the paramilitary arm of the Iranian state.  He was therefore responsible for terror related support activities for Hezbollah, for Hamas, for cooperation or armed smuggling to the Afghanistan, Taliban, and certainly he was also heavily involved in the supply of military arms and support to the many Houthis to Shia militia groups inside of Iraq, both in the past or and US occupation subsequent to that, so in a nutshell, Qassem Soleimani was the enemy of the United States and there's no question that he was responsible for the deaths and injuries of thousands of American service people as well as those of our partners and allies over the last probably 20 to 30 years.



Jason Bordoff:  And yet, prior administrations have chosen not to take the action the Trump administration did, so why is that?



Richard Nephew:  Yeah, it really basically comes down to, and then what happens? Right, you know, I think both the Bush and the Obama Administrations recognized that Soleimani was a bad guy, and that he was responsible personally for a lot of bad things, but he's also the head of an organization and that organization remains in place today.  In fact, they've already announced the successor to Soleimani, and the man by the name of  Ismail Ghani and he is, you know, was Soleimani's number two, and is now number one, and he's taken over all of the responsibilities that Soleimani once had.  Really the only difference between the two of them is that Soleimani was also a charismatic individual.  He was very well regarded inside of Iran.  In some circles, he almost had a cult like status.  He had very strong relations with various different groups and leaders in the Middle East and so that is essentially an intangible that Soleimani possesses that God He probably doesn't, but in the end of the day, we assessed in previous administrations that it wouldn't stop Iran from doing bad things if we eliminate him, but it certainly can prompt them to do worse things if we did.



Jason Bordoff:  So you think his successor largely continues a similar course in the sense that Soleimani's death you don't believe obviously people may disagree, makes the US significantly safer, meaning a reduction in the activities that he was responsible for?



Richard Nephew:  Absolutely.  I think too often we personalize some of these things.  Now, it might make some sense to do so when it comes to terrorist groups, Bin Laden was a different kind of individual than Soleimani.  There was a lot more individual direction of what Al Qaeda was doing as opposed to the IRGC.  The IRGC is an organ of a state and it has ranks and it has a hierarchy and it has succession plans and more important than anything, it's activities are directed by the Supreme Leader as part of state policy and so really what needs to happen is a change to state policy as opposed to necessarily who is running that policy.



Jason Bordoff:  And how has his death been received in Iran?



Richard Nephew:  Well, it's hard to say, you know, I think there are certainly people in Iran, who are glad he's gone, you know, he was responsible, at least in part, and certainly in support of repression inside of the country, but also in what many Iranians use a waste of resources in terms of spending a lot of money and time and energy and effort in Syria, Yemen, Iraq, and so forth, and so I think for that group of people, they're not terribly upset that he's gone.  I think that for certainly people more in the center as well as the hardline, they are very upset and I think you can kind of see that in terms of how the funeral processions were arranged, some of that had to have been some degree of state coercion and make lots of people come out to the streets, but a lot of that was really genuine because Soleimani was seen as an Iranian hero advancing the interests of the Iranian state as well as the Iranian people.



Jason Bordoff:  And just talk for a minute about how we got to where we are Soleimani has been a potential target for a long time, so was it just why now and why the decision and is it part of this ongoing escalation that has been happening where Iran has been seeking to take provocative steps, the recent attack in Saudi Arabia, attacks on tankers, cyber-attacks, and maybe we can talk about how where all of that comes from in terms of the economic pressure they've been under, as a result of US withdrawal from the Iran deal?



Richard Nephew:  And putting it simply, I think there are three ways of starting the story.  The first one starts with the Islamic Revolution and the Iran-Iraq War and the the group of people like Soleimani, who emerged from that war, intent on defending Iran in depth and that meant getting involved in the regional affairs in Syria, Iraq, and so forth, in order to extend Iran's influence and keep enemies at bay and for that reason, Soleimani, the IRGC and the Quds Force have been involved in the regional destabilizing activities for decades and Soleimani story is intricately, you know, linked with all of that.  I think that the second way of starting the story is to say notwithstanding all of that, Soleimani really ratcheted up his direct attacks on the United States with the invasion of Iraq and the occupation of Iraq, and the supply of IEDs and other goods to Shia militant Groups who attacked and killed American service people throughout the country, as well as destabilized Iraq and I think for that reason, Soleimani has certainly been on our target list for quite a long time.  I think prior to the invasion, he might not have been, but I think the most immediate and proximate reason why he was on the list is because the ratcheting up of tensions that started when the United States withdrew from the JCPOA, the nuclear agreement in May of 2018 and that's when we saw Iran started to respond both in the region by escalating destabilizing activities in Syria, Yemen, Iraq, and so forth, as well as to restart aspects of its Nuclear Program, but part of those destabilizing activities has included attacks on Saudi facilities on oil tankers and just a couple of weeks ago on a base that housed Americans, something that the President had made a red line and said, if it happened, we would respond, I think this is the response.



Jason Bordoff:  And how significant has been the Trump Administration's campaign of maximum economic pressure on Iran, we worked Richard and I in the Obama Administration trying to implement sanctions on Iran, which wasn't easy.  It required a lot of diplomacy and a lot of efforts to work with other countries to pull Iranian oil off the market.  At a time It felt like when most countries shared the goal of preventing Iran from obtaining a nuclear weapon.  Iran was seemingly complying with the agreement and most countries opposed the US decision to withdraw from the agreement, so one might think it's kind of hard unilaterally to pull Iranian oil off the market, but Antoine, how successful has the US been whatever Iran's oil exports look like? Now and how much economic pressure are they under?



Antoine Halff:  What has been pretty successful, it's hard to tell exactly what the impact has been because not everything that Iran does in the oil market is above board, so there's a lot of smuggling, a lot of exports that go under the radar that are not really captured in the statistics.  Some of them are captured in tanker tracking, and by companies focusing on new technology and so on.  But the big picture is that Iran has now a much smaller supply to the market than it was before.  The reimposition of sanctions on the country, especially before the lifting of sanctions waivers back in May of 2019, so in  about July 2018, Iranian production was just short of 4 million barrels a day, today is probably around 2.3214 million barrels a day, so it's a significant decline.  Exports were quite significant at the time accounted for more than half production.  Now, probably fed below half a million dollars a day, officially exports are about hundred thousand dollars a day.  As of December, the real level is probably significantly higher, but still a fraction of what used to be.



Jason Bordoff:  And that difference between the official and the real is what is that a lot to China or is that sort of ship to ship transfers and smuggling.



Antoine Halff:  Yeah, some of it can be identified after the fact when the ships deliver at ports, you see, when they arrive, they can be identified.  Some of the exports are just oil that's relabeled, ship to ship transfers, probably some Iraqi exports, which have increased and pretty much in proportion to the decrease in Iranian declines probably are _____ [00:10:43] been relabeled.  We've seen an increase in shipments from Malaysia of the Malaysian plans suspiciously since the decline in Iranian export, so there's some relabeling going on around the world.



Jason Bordoff:  And Richard, your sense of what all that means for kind of the Iranian economy for the sense of pressure that they feel under right now, is that--does that explain why they have felt the need to escalate militarily to try to find some route in order to go to the negotiating table?



Richard Nephew:  Yeah I think, you know, economically, Iran is in pretty bad shape.  Now, of course, it was in pretty bad shape before Trump withdrew from the agreement in any event, because the agreement had only been operative about a year before he withdrew and that wasn't enough time for Iran to reconstitute a lot of the investment and development activities they engage in.  They could certainly sell the oil that they were able to produce, but that certainly wasn't the same thing is what they had hoped.  I think for that reason, they're feeling under a lot of economic strain, no question and they've wanted to try and figure out some way of responding to that, the one way they've done that is through trying to indigenized parts of the economy, engaging in smuggling activity to keep some of it going.  Part of it has been diplomatic or they've been reaching out to the Europeans, to the Chinese, to the Russians to try and see if they can at least say it's not our fault, it's the American's fault, and please put pressure on the Americans to change their opinions.  And I think the third area has been through ratcheting up pressure within the region.  The Iranians have been pretty clear that they were going to impose costs on those countries that they thought were pushing the US in this direction, most importantly, Saudi Arabia and UAE that's part of the reason why they engaged in tax that were directly targeted them, but they also want to put pressure on the United States and I think they can do some of that by increasing the price of oil, thus some of the tax there, which of course also has the salutary benefit of increasing the amount of revenue that they may be able to generate from their ever declining exports oil.



Antoine Halff:  That hasn't worked out to well, though.



Richard Nephew:  No



Jason Bordoff:  Pushing up the price?



Antoine Halff:  Yeah surprisingly, the market reaction has been surprisingly complacent, but the disruption, there's been a couple of disruptions attributed to Iran in the last few months.  There's been the Abqaiq attack on September 14th, Saudi Arabia, the largest all treatment facility in the world.  The impact there was a knee jerk price spike just after the event, which was reversing a few days and a week later prices were lower than they had been before the attack.  Similar pattern happened after the assassination of Soleimani, there was an immediate concern in the market, prices spiked, there was a knee jerk reaction, they felt that there was again when Iran targeted bases within Iraq, they failed again and ending this week probably lower than they had started before the latest run up business.



Jason Bordoff:  So let's talk about why that is, I think, on the one hand, some say, you know, shale is the game changer and in the world of shale, prices can ever spike again.  There were also other factors right after the Abqaiq attack.  The new Saudi oil minister went on television, I think a day or two later and quickly reassured people that this oil would come back to the market and Saudi would meet its customer’s needs.  Similarly, people like Richard said that Iran will certainly retaliate and then when they did so, they immediately seemed to indicate we'd like this to stop and we're not going to try to target American personnel lives and then Trump seemed to indicate a willingness to deescalate too, so how much in changes in the market responsible for that lack of price spike and how much is that just unique to the circumstances of these two events?



Antoine Halff:  I think there's a couple of dimensions and couple of factors.  One is the nature of the Iranian attacks and then is the context of the market.  The Iranian attacks are quite interesting because they combine extreme boldness and extreme demonstration of great power of nuisance.  But at the same time, they were very limited in their impact.  The attack on Abqaiq was quite limited.  The explosive charges on the missiles appear to be very small.  The damage to the facilities was actually quite superficial and could be repaired very quickly.  Similarly, the attacks on the basis in Iran--in Iraq, were quite moderate, didn't cause any loss of life, so there's a risk of misinterpreting this lack of impact as an inability of Iran to really strike the market when in fact, Iran is demonstrating its great capacity to cause harm to do nuisance.


The other factor is the changes in the market and the rise in shale production which I think has led to a perception of independence or energy dominance to borrow a phrase from the US administration.  There's a sense that shale production is short term is essentially the equivalent of OPIC _____ [00:15:38] capacity can ramp up very quickly in the event of disruption.  I think that perception is probably exaggerated as well and there's been recently a dramatic slowdown in shale production growth, a change in the market, changes in the investor expectations from shale producers, now demanding much more profitability and pre-cash flow, not so much production growth, but there's also probably, in the nature of the resource slowdown in the capacity to ramp up production, so I think, you know, if prices went up, we could see a reversal of the trend, we could see _____ [00:16:16] of investments in the shale sector, but would that translate into new production immediately, it will take six months or a year to hit the market.



Jason Bordoff:  Yeah, I just want to follow up on that.  I think it's a really interesting and important point to understand what--how shale has or has not changed the fundamentals of the oil market and whether like do supply disruptions matter anymore.  I had one of you agreed with it.  A fun thing about working in the center is we don't all agree all the time, which is fine, but I had a piece in The Washington Post today where I tried to speak to some of this and talked about how shale does matter, but within limits, right, it's not swing spare capacity that comes online within a few weeks.  It takes 6 to 12 months to ramp up, obviously prices at the pump are still set by the global market, but it is true that shale has put a huge amount of new supply on the market and even though the growth in shale is certainly slowing, what seems to matter--you tell me if this is right, what seems to matter for the impact of supply disruptions on the market is how quickly it can be ramped up and down in response to those price changes.  And you just made a comment, I wanted to capture a minute ago that you thought that elasticity that responsiveness may decline over time, which could be quite important.  So talk a little bit about how much shale both because there's so much of it, but also because it's short cycle and one of the things that's done is that when today you see supply disruption, seems to me that it pushes up the price today the front of the curve, but the back of the futures curve doesn't move very much because people anticipate supply will be coming relatively quickly.  Is that true? Is that going to continue?



Antoine Halff:  Yeah, it's true.  The back of the curve hasn't moved and I think there's probably different reasons for that is partly expectation that shale can make up any differences probably concerns about long term demand which are rising with climate policy and maybe concerns about the sustainability of the current strong economy, so combination of factors.  Yeah, I think shale has grown very dramatically over the last few years, we've seen a slowdown, there's clearly a change of pace, the industry's changing gears, and the anatomy of the industry is changing as well.  So when the shale revolution took place, it was really led by very small companies that were very _____ [00:18:36], very agile, capable to adjust the market condition very quickly to ramp up capital to deploy the capital very effectively, very rapidly and this is changing, we've seen a lot of consolidation, we've seen quite a few bankruptcies.  The majors have a much larger footprint.  Exxon is now one of the largest players in the Permian, the most prolific shale player for example.  And I think, among the private companies in the Permian, the very largest are growing rapidly, the others are faltering.  So the nature that the physiognomy of the industry is changing, and is now resembling much more the conventional industry in a way.  Larger companies deeper pockets, but also slower to respond more conservative, and many of them with a diversified portfolio, so not just not just shape your players, but companies with assets elsewhere, that will be concerned about optimizing the revenue from those assets as well, not just the shale assets.



Jason Bordoff:  So as you said, there seems to be a perception, the US is on the cusp of becoming a net oil exporter, that kind of swings back and forth month to month now, but 2020 on an annual basis, we should be which is a stunning turnaround from where we were a decade ago.  And there's a sense in response to that the Middle East matters less, there's not as much reason for the United States to have a military presence in the Middle East, is that wrong?



Antoine Halff:  It is wrong.  Yes, of course as you _____ [00:20:00], it is a very US centric view that fails to capture the reality of the world at large.  The Middle East steel exports to the Strait of Hormuz is about 20% of suppliers and for countries like China, this is a very significant component of what they import and what they consume.  China uses about a quarter of the oil consumed in China comes from the Strait of Hormuz, so the importance of this trade as _____ [00:20:30] pathway, but also important that region as a source of production could not be overstated.  What's happening is that there's kind of a shift eastward of Middle East production towards Asia towards the eastern markets, China, of course, India but other consumers in the region as well and rebalancing, and the sense I think, in the region that the US is no longer going to be around to defend the industry if it comes under attack.  This is kind of the message that people hear from President Trump when he says we shouldn't import from Middle East or anywhere.  I think this is raising alarms in Saudi Arabia and other countries, you know, what does that mean? Does that mean that the US would no longer protect the ships in the Strait of Hormuz? Does it mean that they're not going to have our back if we come under assault.



Jason Bordoff:  Richard, you even before Soleimani's death, you've been writing for a while about this reality/perception that the Carter doctrine is over, the idea that the US will defend its interest in the Middle East with military force if necessary, that's not true as much today, and certainly people in the Gulf may worry that it's not true today.  What impact is that having?



Richard Nephew:  Well, I think it has, you know, two maybe three discrete impacts to me.  First of all, it of course, subsets, all those countries that are in fact dependent on energy security coming out of there, and it runs the risk of very different approaches being taken to countries in the region to threats in the region, some of which are directly contrary to dismiss administration's interest.  So take for instance, the Japanese and the South Koreans, if their concern is that they're not going to get their oil supplies that are going to be coming through the straits.  Do they really have as much incentive to cooperate with the United States in putting punishing sanctions against Iran, if at the end of the day, their economies are completely dependent on what they're able to get from there.  It's going to raise questions about what their military deployments need to be and we've already seen that other countries are exploring putting their own forces inside the Gulf and it's a small amount of space and so to some extent, you know, having that many different military forces co-located with one another and operating closely raises the risk of frictions and the possibility of inadvertent conflict.


And then, of course, there's the much larger issue, which is the degree to which Iran believes that it's emboldened to do what it like to do in the region.  As I said, this administration has stated that it wants to push back on Iran's dominance of the region.  It's kind of a funny thing to do that while at the same time inviting the idea that the Iranians can both _____ [00:22:59] some degree of control and we'll be in a position to assert that kind of control over goods that are coming through the straits, but that's exactly what we're doing, if the United States is withdrawing from the kinds of support and the kinds of involvement that we've had in the Persian Gulf in the past.  So, you know, we wrote a paper on this subject with our colleagues at the center on New American Security back in November, where we actually went through some scenarios for the market, if in fact, the Iranians took a variety of different actions and it's worth noting in that context, what the price impacts were and some of them were quite severe, depending on how bad the scenario was.  But even more important in long term where the impacts on the perceptions of the United States the degree to which the US would have its interests respected in the Middle East, and the kind of requirements that we'd be made on the United States for force protection and for military forces and where they could be located and so forth, so there are a lot of impacts that come along with this perception that's now radiating throughout the Middle East that the United States is desperate to leave.



Jason Bordoff:  Just want to understand what impact that perception has on risk to oil supply because as you wrote in your paper in November, in the sense the US won't be there militarily may seem to increase the risk that oil supply could be disrupted.  On the other hand, if the US seems to believe that does Iran view disrupting oil supply as less of a weapon, because it may not hurt the intended target, but it will hurt China and Europe and a bunch of parts of the world that Iran may not want to alienate right now?



Richard Nephew:  Well, that's where we have to think very carefully about Iran's interests here.  Iran would like to impose costs on the United States, but they absolutely want to impose costs on US partners as well, so that us partners will change their support for US policy, right, and I think this is a very key point that these various different partners are at this point at a crossroads.  They have to decide how much they want to support US policy interests and how much they don't want to support US policy interests.  If the United States is signaling that we're not going to be there to defend their interests and that their interests are going to be directly targeted by the Iranians.  Again, this all goes back to a question of how much should we be invested in this relationship in the United States.  It's worth noting, in this context, of course, that this isn't the only problem that we've got with a variety of these countries.  We've got everything from trade wars to North Korean issues to intellectual property rights, etc.  So it's part of the basket of issues in which I think a lot of countries are reconsidering their reactions to and relationships with the United States.



Jason Bordoff:  And the other thing, I assume you'd agree that I certainly saw when I was in government is notwithstanding the perception the oil markets may matter less or the reality that the US economy overall is probably less harm that oil price spikes when global oil prices go up, prices at the pump go up, and politicians still care a lot about that and in an election year, we certainly know this president seems to care about high gasoline prices, Iran may still view that as a potent source of leverage.  So again, welcome back to what risks there are, as Antoine said, oil prices went up now that come back down, the market seems complacent again, because we're done seemingly right.  They took a retaliatory step seem to go out of their way to avoid loss of life and then indicated a desire to deescalate.  So have we moved past this crisis now or are we underestimating the likelihood of significant additional actions by Iran or by the US maybe in response?



Richard Nephew:  I mean look, there is an argument to be made that we are in fact passed this  here, you know, the Iranians got to respond, the United States got to walk away from retaliating to that response and now arguably, you know, things are going to go back to where they were.  The problem is where they were wasn't a very good place to start off with an escalating nuclear crisis and it's worth noting in this context that Iran's nuclear program is already under one year away from being able to produce a nuclear weapon and we'll be getting closer to that mark every single day because of Iran's decision to withdraw from various different nuclear provisions of the agreement in response to the US decision to withdraw from the agreement all together in May of 2018.



Jason Bordoff:  And in response to the death of Soleimani, they said, we're done compiling it all now, is that right?



Richard Nephew:  Exactly, exactly, at least with respect to the restrictions on the nuclear program, they're still providing access to the International Atomic Energy Agency, but in terms of their ability to produce a nuclear weapon, in theory, all the constraints are narrow off on Iran and it really is just a question of what they choose to do and



Jason Bordoff:  What are they doing? Are they restarting the nuclear program?



Richard Nephew:  Well, they have already started expanding the amount of enriched uranium that they're stockpiling and the number of uranium centrifuges that they've installed the amount of research and development work.  They're doing on advanced centrifuges.  In terms of specifics as to what they're doing beyond that, we're next going to find that out when the International Atomic Energy Agency issues its report expected in February as to kind of the true scope of whatever they're doing.  But that's all the stuff that they're doing right now already that's making the region particularly unsettled place and the situation particularly risky.  It goes back to a more, you know, direct question is Iran actually done now? The Iranians did not say that they are done.  They said that their direct military response to the United States is done, which is a very careful way of saying there's lots of indirect things that we both intend to do and are planning to do and that's frankly par for the course.


Well, I think a lot of their focus is going to be on terrorism related tactics.  They may engage in some cyber related tactics as well, but I would imagine what they will do is two-prong, first that they'll continue to support the many Houthis, Shia militant groups, folks in Syria to attack US interests and those of our partners.  We've already seen rockets landing inside the Baghdad Green Zone; we're probably going to see more of that.  We may see more many Houthi strikes on Saudi and Emirati infrastructure, that's of course, bearing in mind that the Saudis and Emirates are trying to deescalate with Iran as well right now, but we also might see direct terror related attacks against the United States and it's worth noting two things in this regard.  First, the reason why Iran is on the state sponsored terrorism list is because of the Beirut barracks bombing going all the way back to the early 1980s.  That's not the only time that Iran or Iranian proxies have directly attacked US interests, of course.  The Iranians themselves attempted to blow up a restaurant in Washington DC in 2011, that _____ [00:29:20] the ambassador from Saudi Arabia was supposed to be in.  So, Iran has a history of direct terror attacks against the United States in our interests and I wouldn't be least bit surprised if they're planning attacks now against the US Embassy, a major US bank that looks emblematic of the United States or other interests, they're going to be abroad and then it goes to a question of what the United States does in response to those especially if attribution for who is responsible is ambiguous.



Antoine Halff:  As far as the oil market, I think the paradox of the situation is that the production has not really been affected in any way, and not by the latest attacks on Iraq, not even in a big way by the attack on Abqaiq, but the risk to the market has dramatically increased.  The potential will of Iran to retaliate has been practically established by Iran and the capacity of nuisance has been dramatically demonstrated by the attacks on Abqaiq and by the latest attacks on the American bases in Iraq.  So, the the risk of future disruptions is dramatically increased.  Right now, no impact whatsoever on the flows not even on Iraqi production, Exxon, Chevron, the US companies engaging in production in Iraq have removed the personnel, the expat personnel from the operation.



Jason Bordoff:  And just everyone knows Iraq is I think the second largest producer and OPEC, it's hugely important producer.



Antoine Halff:  Hugely important and also one of the few countries where production is expected to grow dramatically in next few years.  But the removal of the last few US and expert personnel that were involved in the fields that Exxon is running and Chevron is developing in the KRG is not going to have any kind of significant impact in short term and midterm oil production, but the potential for disruption is dramatic, and then the other issue is that most of the spare capacity that the world depends on in the event of a disruption is actually in Saudi Arabia, a country that could be targeted by Iran and the other resource that the oil market has in the event of disruption strategic reserves run by the IAEA countries, including the US might not be as effective in today's environment, with less multilateralism, less goodwill towards the US, and less coordination between the US and China, which is now the second largest holder of reserves.



Jason Bordoff:  So some important suppliers in the region, we've determined the oil supply in the region still matter, so and Richard, I'm curious your view of how big or how much at risk that supply is obviously Iraq, UAE, Saudi are major producers.  On the one hand, the attacking energy infrastructure in those regions might be seen to avoid crossing a red line that would prompt severe US military response.  On the other hand, Iran maybe trying as Iraq is taking steps to signal they'd like the US to leave maybe Iran is trying to court Iraq and not alienate it right now and as you said, Saudi and UAE have taken steps to deescalate in the region with Iran, are those real and might Iran not want to upset those either?



Richard Nephew:  Yeah, I think that the best thing we've got going right now for market stability and for oil coming out of the Middle East comes from the fact that Iran is still on a bit of a diplomatic offensive and trying to take advantage of the situation to rebuild ties with some countries and to, you know, further deepen them with others.  So for instance with Iraq, I think the Iranians now perceive that they are really in a driver's seat to some extent, and have been able to reversely some of the degradation of their ties, you know, with Iraq as a result of these attacks in Iraqi frustration of being upset about, you know, the attacks that were launched by the United States within their territory.


I think with regard to the Saudis and the Emirates, the Iranians have had an ongoing dialogue with both and I think that the Saudis and Emirates have tried to signal to the Iranians that we are not interested in active conflict right now and the Iranians could perceive that as a good reason to avoid striking and then when you add to that, the fact that the Iranians have good relations with Oman, good relations with Qatar, I mean, you start adding up to a number of places where they potentially would not want to act, and that might push them again, in terms of taking action against US interests located elsewhere.  I think though, if the Iranians decided to respond, they would have to think a little bit about what the United States would choose to do and right now, I don't think that message is very reassuring.  The United States has only one red line with respect to Iran, and it's maintained it that is attacks on US personnel, but it has also been very clear, including at the Secretary State Level that we're not interested in safeguarding the Persian Gulf, Secretary of State, Pompeo said that's up for Japan and China and other countries to do and so from that standpoint, I think the United States has signaled both with regard to the tanker attacks, with regard to Abqaiq, and with regard to statements that have been made, that they're not going to lift a finger to secure energy supplies coming out of the Persian Gulf and certainly not engaged militarily in doing so.  So ultimately, the best thing that we've got going for us right now is Iran still perceives some diplomatic and some political benefit from good relations with some of these states.  If that were to go away, then I think we're in a much more precarious and dangerous situation.



Jason Bordoff:  So last question, because we're, unfortunately at a time I could talk to you guys all day, which I get to because we work together, but for the purpose of this podcast, just where this is headed Richard and like a little bit of a longer term that, you know, this all happened because there was a sense of maximum economic pressure Iran had to find a way out from under, is that going to continue with renewed tit for tat escalation is the possibility of negotiation, some sort of new Iran deal much lower, much higher, and then if there's a change in administration, how easily can this all be put back together again? And does a new democratic president just rejoin the Iran deal on day one, or is this going to be much harder to do?



Richard Nephew:  Yeah, I think at a strategic level, Iran's intentions are the same as what they've been for the last year or so which is to try and play this out as long as possible without having a crisis really be at their front door until after the next US presidential election.  I don't think that they are eagerly awaiting a democrat being elected.  I do think they're eagerly awaiting someone that they think is more predictable and more stable as a negotiating partner that they can work with and so I think they want to see what could potentially happen after the US election.


I don't think that means though, that they're going to just sit back, I think that they've already demonstrated that on the nuclear realm.  I think they are going to engage in some degree of tit for tat responses to the Soleimani's death again with terror attacks and with other destabilizing activities in the region.  But I think they're going to do so in a way that at least it is an attempt calibrated, so that way, they can try and keep the situation as stable as possible before November, but it's worth noting here the politics in Tehran are pretty nasty.  The supreme leader is trying to balance a lot of different interests and the hardliners have to be screaming right now.  We look weak, we don't have deterrence _____ [00:36:32] the Americans, we need to do more and I think the supreme leader's own instincts are actually more the hardliners than people like Rouhani who are probably saying, let's at least give space until November of 2020, so all that adds up to in Iran that has every interest in the world to try and keep the situation stable, but potentially every motivation in the world to try and respond including through increasingly violent means to push back on the United States and all that adds up to what happens in 2021.  I think it'd be nice if future US administration, or this administration could choose to just rejoin the JCPOA, but that was going to be hard anyway, with the damage that's been done with the fact that sanctions relief was never working all that well from the Iranian perspective in any regard, so they were going to be looking for changes



Jason Bordoff:  Just to be clear, it's going to be hard because of Iranian domestic politics because of US domestic politics?



Richard Nephew:  Well, that's where I was going to come back to you, so from an Iranian perspective, they were going to have difficulties, you know, just simply accepting readmission to the JCPOA.  They've already talked about how they are going to want both additional concessions and how they potentially might want compensation for what's happened to them.  From a US political perspective, it's really hard to see a future administration, either a Trump one or Democratic administration, being able to engage in negotiations and grant sanctions relief to Iran that has attacked US embassies to Iran that has directly threatened US forces operating in the region and elsewhere, alright.  It has attacked US economic institutions, so I think that ultimately, every step that is taken in 2020, to further inflame the situation makes it all that much more difficult to imagine that in the early days of a future democratic administration, there is going to be rejoining the JCPOA.  But here, it's worth noting, and I think it's worth underscoring that Iran has demonstrated over the course of last several years, its fundamental rationality in terms of seeking national interest, and the Iranian national interest is still geared towards a diplomatic solution that allows for investment in economic activity to restart.  The real question is whether or not Iran still perceives that national interest a year from now or whether or not Iran feels that no matter what it does, it's going to be in trouble and so it might as well engage its base or interest.



Jason Bordoff:  And when a Democrat administration, kind of if Iran were willing to do it be able to kind of go back to the original terms of the JCPOA, presumably the time frame would need to be adjusted somewhat, or does it now need to account for things other than the nuclear program?



Richard Nephew:  Well, I think they were going to already have to deal with the fact the sunsets and the fact that we've lost four years towards negotiating a longer term agreement, which was always the plan that the Obama administration and folks who were advising Hillary Clinton had in mind, but I think, you know, to some extent, it's going to depend on how much bad stuff happens in 2020 whether or not the politics are there, it's going to depend on who's in control of the Senate, who's in control of the House, you know, there's a lot of factors that are a little bit difficult to estimate right now of how easy it would be for a future administration to either rejoin a existing JCPOA, restart negotiations on a future JCPOA, or something in between.



Jason Bordoff:  All right, well, I have a feeling this story is not going away, and we'll have a opportunity to talk with you both again and read the work and the writing you're both doing over the next year. Thank you, Richard and Antoine for joining me today.  Thanks to all of you for joining us.  Thanks for listening and for tuning in.  For more information about the Center on Global Energy Policy, visit us online at, or follow us on social media @ColumbiaUenergy.  I'm Jason Bordoff.  Thanks for listening.  We'll see you next week.