Iran nuclear deal win may be short-lived for Rouhani

Published January 17, 2016
A win for a Republican in November's US presidential election could see the agreement fall apart.─ AFP/File
A win for a Republican in November's US presidential election could see the agreement fall apart.─ AFP/File

TEHRAN: It is the hard-fought central pillar of his presidency, an election pledge delivered, but Hassan Rouhani may yet find it difficult to capitalise on Iran's nuclear deal with world powers.

The agreement, finally implemented Saturday in Vienna, consumed Rouhani's first two-and-a-half years in office but it will lift sanctions that had crippled Iran's economy.

Having ended the 12-year international crisis over Iran's nuclear programme, Rouhani wants to bolster his position at home, where Iranians want to see concrete economic improvements.

Related: Nuclear sanctions lifted as Iran and US agree on dramatic prisoner swap

If candidates aligned with the moderate president make gains in parliamentary elections on February 26 they could shift the balance of power away from conservatives, allowing him to enact some social and political reforms.

In Rouhani's favour is a high approval rating – more than 60 percent, analysts say – but his fate remains tied to the nuclear deal.

A win for a Republican in November's US presidential election could see the agreement fall apart.

Related: Israel will not allow Iran to obtain nuclear weapons: Netanyahu

"If sanctions are removed with no problems, Rouhani will benefit as he will be seen as a good politician who kept his promise," Foad Izadi, a politics professor at Tehran University, told AFP.

"But if what is happening in Congress continues, and the deal unravels without positive results, Iranians will reconsider what Rouhani did. They will be able to ask him: what happened?'"

Only in the United States have politicians spoken of ripping up the agreement. The other five powers involved – Britain, China, France, Russia and Germany – remain squarely behind it.

Republican in the White House?

The Republican-majority House of Representatives has proposed a bill that would bar President Barack Obama from lifting some sanctions.

Although Obama can veto the measure, it shows the potential pitfalls for the nuclear deal -- no Republican candidate running for president has pledged to keep it.

Rouhani, facing a re-election race in June 2017, remains exposed to such a shock.

"Many Republicans were against the Iran talks from the beginning," Izadi said. "If they get their way Rouhani may not get a second term as president."

Such a result would be a first since the Islamic republic's formation in 1979.

Rouhani is its seventh president. The first one fled and the second was assassinated, but the four who preceded him each served two consecutive four-year terms.

Amir Mohebbian, a moderate conservative political analyst and strategist close to Foreign Minister Mohammad Javad Zarif, said Rouhani's government remains vulnerable to public opinion.

The biggest potential weakness is that Iran's president has offered hope of better times yet the economy is flat.

Related: Israel planned to attack Iran three times in recent years: reports

Rouhani has managed to cut inflation to 13 percent from above 40 percent under his hardline predecessor Mahmoud Ahmadinejad, but growth remains weak.

Iran's currency, the rial, has lost ground against the dollar since the nuclear deal was struck on July 14 last year. And income from oil sales has plummeted because of the falling price of crude.

"Ordinary people's short term memories are awake. They still see the situation as worse than before. They need to see a positive," Mohebbian said.

Rouhani has managed to cut inflation to 13 percent from above 40 percent under his predecessor Mahmoud Ahmadinejad.─AP/File
Rouhani has managed to cut inflation to 13 percent from above 40 percent under his predecessor Mahmoud Ahmadinejad.─AP/File

Impact on oil market

Iran's intention to significantly increase oil output after the lifting of international sanctions risks more pressure on crude prices already at 12-year lows, according to analysts.

Oil prices tumbled by more than 30 percent last year and have slumped by a further 20 percent since the beginning of 2016 — culminating in drops below $30 a barrel last week.

“The immediate impact of the news that Iran is returning to the market will almost certainly be bearish for oil prices,” Fawad Razaqzada, an oil analyst at Forex.com, told AFP.

Related: Saudi-Iran standoff magnifies upside risk for oil

“Given that this is mostly priced in however, we probably wouldn’t see a massive reaction. The full impact may be felt when the market knows how much oil Iran will actually produce and what the response from its competitors will be.”

The Islamic Republic’s move to hike production comes after an agreement negotiated in July between Tehran, Britain, China, France, Germany and the United States to limit Iran’s controversial nuclear program in exchange for a progressive lifting of sanctions, including those related to oil exports.

While the progressive removal of international sanctions limits Iran’s return to full production capacity, additional exports to a market already well oversupplied does not bode well for prices.

“If Iran’s goal is reached, this will not fundamentally change the current state of the oil market,” Saxo Bank analyst Christopher Dembik told AFP.

“This will of course result in greater oversupply but it will not be decisive to the evolution of oil price over the year,” he added.

Iran insists that it will not concede on its level of production once the international nuclear agreement comes into force.

According to analysts at Commerzbank, Tehran could resort to a progressive production increase to limit the pressure on oil prices, a view supported by the president of the National Iranian Oil Company.

And it claims that it will produce 500,000 additional barrels of oil per day once the sanctions are lifted, rising to an extra one million barrels before the end of the year.

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