Corporate Debt Review

Some Optimism in Iraq but INSTEX Lands in Iran with a Thud

IPC Takeaway: Opinions Vary

As I conclude my latest round of discussions in Europe, the Iranian crisis again takes center stage.

This trip began with a series of meetings in London at and surrounding the annual Iraq Petroleum Conference – marked by the first genuine upbeat approach to investment in Iraqi energy I’ve seen in some time – and it ended with a cordial but noncommittal session on the continent with Iranian contacts. Moreover, the regional security message carried from those latter conversations was hardly encouraging.

As per usual, I straddled my time between the conference particulars and a series of informal meetings I had with sector colleagues (who often use formal conferences as the location for their own private negotiations).

But rarely have I perceived such a range of attitudes as I experienced this time around.

Iraqi Optimism on the Rise

Rising confidence was especially noticeable in the formal program with which the conference concluded (and which accounted for the official portion of my travel to London).

On Saturday, Iraqi central and regional officials unveiled energy and infrastructure capital investment projects for areas surrounding Kirkuk and Mosul taken back from ISIS. My responsibility was to discuss ways of mitigating project risk.

I have been to both cities, and Mosul in particular has always fascinated me. It sits on the west bank of the Tigris River across from the ruins of Nineveh, the ancient Assyrian city. Its university had been one of the great academic and research centers in the region.

The territories concerned were devastated by ISIS occupation. In Mosul, occupation began in 2014 with liberation taking place after almost four years of fighting. Once the battle was over, barely a single building was left standing with a displaced population of some two million.

The sight was quite different from what I remembered during my earlier visit. This is what it looked like following ISIS being pushed out:

Mosul after the battle to liberate the city, 2018.
But by the time our activities began on Thursday in London, a welcome optimism had renewed. It was an occasion for planners and potential investors to meet and begin designing a renewed city. The essential funding to rebuild devastated infrastructure needs to come from public and international agencies. But the return of normalcy for energy and power production will largely be the responsibility of the private sector. That’s where my work comes in, occasioning my initial response this time around in London.

June 29, 2019 – the view from my panel at the Iraq Petroleum Conference, London
It will take some time, but the process is beginning.

The elephant in the room, however, involved whether the latest crisis in the region will derail the process. And that was the subject of my second reason for travel.

About That Elephant…

After the activities in London I was off to a very different conversation. What was left of my ongoing conversations with Iranian contacts occurred under much lower expectations. Those talks are ongoing as I write this.

The assumption here was what the same I had experienced when the subject arose earlier in London.

There is going to be a war in the Persian Gulf. The dimension and extent of the conflict are debatable. But Washington and Teheran have little common ground left to avoid one. The Iranians are resigned to it and the sides are hardening.

Baghdad has made it clear that it will not allow US troops to use Iraq as a launching point for military operations against Iran. That position has been made directly to the military leadership at US Central Command in Qatar.

But the latest attempt to lessen the situation has been a disappointment for Iran. The UK, France, Germany, and the EU – the European signatories to JCPOA – finally unveiled INSTEX while I was in London. It had fallen like a dead weight by the time I reached the Iranians.

JCPOA stand for the Joint Comprehensive Plan of Action, the 2015 agreement on curtailing Iranian nuclear development. The Trump Administration unilaterally pulled out of the accord. But the remaining parties (the four European, Russia, China, and Iran) have remained.

Meanwhile, INSTEX stands for the Instrument in Support of Trade Exchanges. This was the much-anticipated European response to the renewal of US sanctions against Iran. Unfortunately, what emerged was essentially the same framework everybody knew about months earlier.

To invoke my favorite Gertrude Stein quote, “There is no there there.”

Getting the Short End of INSTEX

What the Iranians needed was a way to finance the continuing export of crude oil allowing the country to bypass the use of dollars and banking subject to the Belgian-based SWIFT (Society for Worldwide Interbank Financial Telecommunications) system. After the announcement that Washington would renew sanctions, SWIFT had indicated it would abide by the US demand that Iran be excluded from the interbank transfers basic to international trade.

INSTEX substitutes a network of sovereign credit guarantees to allow European trade with Iran to continue without having access to dollar-denominated exchanges via SWIFT. But INSTEX covers far less than what Teheran had hoped.

To minimize American reprisals, the system is limited initially to categories of trade comprising humanitarian needs (medical, pharmaceutical, imports of certain food products, infant products, and the like).

Nice, but hardly a game changer for an economy dependent for its survival on exporting crude oil.

One of the Iranians involved in my conversations succinctly put it this way: “Much of the international community condemned the US during the last sanctions [those implemented between 2006 and 2012] for the adverse impact on children and the sick. Europe is finally addressing that US crime seven years too late.”

China has begun importing Iranian oil again in direct confrontation to the US, a matter Trump was careful to avoid mentioning in the recently concluded G20 sidebar meeting with Chinese President Xi Jinping. For its part, Moscow has instituted some financing arrangements to allow Iranian oil to pass through via contract swaps.

But neither of these has arrested what is a significant drop in Iranian oil export revenues.

The response to INSTEX by officials in Washington has been anticipated. There spokespeople continue to insist that the world would prefer to do business with the US rather than adopt cumbersome ad hoc remedies to bypass sanctions.

Yet there is another aspect to all of this, one for which I have some personal experience. There continues to be an unjustified belief in the overpowering impact of economic sanctions.

Learning From Experience

I had some involvement in designing the last sanctions regimen against Iran. Whenever such methods are employed, they are useful only if paired with a primary diplomatic objective. Short of that, the only alternative is a military one.

Seeking regime change is a nonstarter. Using oil as a weapon also is unsuccessful. After all, rather than preventing war, an oil embargo brought about the attack on Pearl Harbor and the US involvement in World War II.

Last time we designed sanctions against Teheran, the target was to temper Iranian nuclear ambitions. That finally achieved a measured success in 2015 with JCPOA.

Unfortunately, that is precisely what Trump undermined with no realistic alternative available.

Of greater personal concern is what I will carry back from this trip to Europe. My Iranian contacts and I have little common ground left.

About the Author


Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.