Iran, Russia Ruffle US Feathers With Oil-Swap Deal

This morning's apparent U-turn in US-Iran relations – when the US demanded the UN rescind Iran's invite to the Syrian peace conference having somewhat instigated their invitation in the first place – is a little confusing for some. However, as OilPrice's Joao Peixe points out, reports are emerging that Iran and Russia are in talks about a potential $1.5 billion oil-for-goods swap that is sure to upset the powers that be in Washington.

Submitted by Joao Peixe via OilPrice.com,

Reports are emerging that Iran and Russia are in talks about a potential $1.5 billion oil-for-goods swap that could boost Iranian oil exports, prompting harsh responses from Washington, which says such a deal could trigger new US sanctions.

So far, talks are progressing to the point that Russia could purchase up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods, according to Reuters.

"We are concerned about these reports and Secretary (of State John) Kerry directly expressed this concern with (Russian) Foreign Minister (Sergei) Lavrov… If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the P5+1 agreement with Iran and could potentially trigger US sanctions," Caitlin Hayden, spokeswoman for the White House National Security Council, told Reuters.

Russian purchases of 500,000 bpd of Iranian crude would lift Iran's oil exports by 50% and infuse the struggling economy with some $1.5 billion a month, some sources say.

Since sanctions were slapped on Iran in July 2012, exports have fallen by half and Iran is losing up to $5 billion per moth is revenues.

In the meantime, a nuclear agreement reached in November with Iran and world powers is in the process of being finalized, and the news of the potential Russian-Iranian oil swap deal plays to the hands of Iran hawks in Washington who are keen to seen the November agreement collapse.

The November agreement is a six-month deal to lift some trade sanctions if Tehran curtailed its nuclear program. Technical talks on the agreement began last week.

Under the terms of the tentative November nuclear agreement, Iran will be allowed to export only 1 million barrels of oil per day.

In mid-December, Iranian oil officials indicated that they hoped to resume previous production and export levels and would hold talks with international companies to that end.

This announcement sparked an immediate reaction from US Congress, which has threatened oil companies with “severe financial penalties” if they resume business with Iran “prematurely” following the six-month agreement reached in Geneva.

There are plenty of figures in Congress—Republican and Democratic alike—who are opposed to the deal. The key “Iran hawk” in US Congress, South Carolina Republican Lindsey Graham, has described the deal as “so far away from what the end game should look like”, which should be to “stop enrichment”.

The opposition in this case believes any talk between Tehran and Western oil companies is premature because they are convinced that we won’t see a comprehensive resolution after the six-month period, and that sanctions will be laid on stronger than ever before.