Daniel Sternoff:
Events in the Middle East are changing quickly and the complexities of understanding the global energy landscape grow deeper by the hour. We are cutting through the headlines to bring you real time analysis. Join me as we talk to leading experts on the latest developments in the region and what it means for the rest of the world.
Welcome to the Iran Conflict Brief, a limited edition of the Columbia Energy Exchange Podcast at the Center on Global Energy Policy at Columbia University devoted to the current crisis in the Gulf. I’m Daniel Sternoff, a senior fellow at the Center on Global Energy Policy.
We are recording this podcast on Monday, March 16th at noon in Washington DC, 8:30 PM in Tehran and 8:00 PM in Abu Dhabi and Riyadh. I’m joined today by Richard Nephew, a senior research scholar at the Columbia Center on Global Energy Policy. Richard has held a range of senior roles in the US government over the past two decades, including but certainly not limited to. Deputy Special Envoy for Iran, principal deputy coordinator for sanctions policy at the Department of State and director for Iran at the National Security Council. Richard is the author of the Art of Sanctions and there is no better colleague to discuss Iran geopolitics and their intersection with energy markets, economic statecraft, nuclear topics and sanctions. Good morning, Richard.
Richard Nephew :
Morning.
Daniel Sternoff (01:28):
So we are now into week three of a war that is taking a rising toll on global energy markets. Middle Eastern upstream oil production shut-ins are now approaching 10 million barrels per day and almost half that amount, 5 million barrels per day of downstream refinery operations have halted. Last week we saw the largest SPR release in history at 400 million barrels, which at most helped blunt the further rise in Brent oil prices over a hundred dollars per barrel. But limitations on the flow rate means that strategic stockpiles might at best be able to meet a fifth of ongoing daily disruptions. And of course, 20% of world LNG remains shuttered. The world energy system is now in a race against time. Disruptions of a few weeks will leave a tighter market and some scars, but a path to normalizing flows. But if disruptions at these levels extend deep into next month, it’s pretty likely we’re going to need significantly higher prices to start forcing demand lower.
(02:27):
Unfortunately, with events over the weekend, it did not look like we see a swift conclusion. During the weekend, the US attacked a broad range of military targets at Kharg Island, Iran’s most important oil export hub. But President Trump went out of his way to stress that he was not currently targeting Iran’s oil infrastructure there. Iran nonetheless retaliated by attacking the UAE’S oil port of Fujairah, a key Emirati hub for flows that bypass Hormuz separately, a marine expeditionary unit is being dispatched from Okinawa to the region and the commander in chief threatened yesterday that he could hit Kharg Island again just for fun. So Richard, on a tactical level, the US Israeli campaign seems to be significantly damaging Iran’s capabilities to project hard power, but on a strategic level, the Strait of Hormuz is basically shut and the very small numbers of tankers that are getting through seem to be Iranian oil destined for China, or somehow they’re tankers that are being granted safe passage by Iran as appeared to be the case of two LPG tankers heading to India under Indian naval escort. Do you agree with the assessment that Iran strategically holds the upper hand here?
Richard Nephew (03:41):
Well, it’s a good question. It’s a good time to step back and think about a little bit. I mean, I think you can approach this on a couple levels. On the most straightforward level, would you rather be in Iran’s shoes or the American shoes right now? Right. I don’t think anyone would say, I would rather be facing the kinds of choices and the kinds of risks and the kinds of threats that they’re facing in Tehran. And I think that speaks to the United States being able still to use force in a very concerted, directed and effective way. Its partnership with Israel to be able to do so, the degree to which you’re still having missiles, intercepted drones intercept and so forth, and all that speaks to the United States still having both a tactical and a strategic upper hand. But then we got to think a little bit about what our objectives are.
(04:29):
And I think at the most straightforward level, the US has said its objective as denying Iran the ability to project power outside of its borders. And it may be that over the long arc, this campaign will be successful there. Right now you’d have to say it’s not been, Iran is still able to utilize the long husbanded resources that they have to threaten access to the Strait of Hormuz and thereby global energy supplies to threaten financial centers in Dubai to threaten even just population centers, whether they’re in Israel and Gulf Arab states or so forth. And certainly US forces operating too. So more than anything, I think what the current situation shows is that Iran still has the ability to throw its weight around, to throw a force around and to try and impose real costs on the United States for this campaign. The real question at this point is what is the durability of the US response? What are the countermeasures that could be employed and whether or not they’ll be effective in any kind of near term basis right now, you’d have to say they’re not being
Daniel Sternoff (05:33):
Right. And it would seem that if President Trump would choose to end the conflict now by declaring victory, we would be left with the undeniable reality that Iran will have proved, especially to its neighbors in the Gulf, that it really holds the key to the flow of energy. And I’m not sure that that’s how we would want to end this conflict. And I don’t know that the Gulf States would be comfortable with that being an end.
Richard Nephew (06:01):
No, and that actually, it bears out a little bit here and it’s worth kind of pausing and thinking about this. Part of the reason why you don’t undergo these kinds of military campaigns without really thinking through second and third tier impacts is you have to decide whether or not you’d be satisfied with a second or third tier solution too, right? Whether or not the resolution that you’re actually aiming for is something that you can live with. If the outcome of all of this is that we have stripped away Iran’s long range missile force, we’ve stripped away a lot of their internal security forces, but not all we’ve stripped away their ability to threaten ships transiting the strait, but not all of them. And we still have the regime in place in Tehran really what have we left ourselves with? What is the strategic circumstance that we are leaving ourselves with and what does the long-term arc of this all look like?
(06:51):
And I think this is one of the challenges that is now confronting the United States having, I think anticipated that this whole conflict would be over much more quickly than it has been, and that Iran would not have the ability to continue threatening access to the straits as well as all of these regional partners and economies the way they are. We’re now caught a little flatfooted, and I think this is the moment that the president has to really wrestle with how much farther do I need to press the military campaign to ensure that all this wasn’t for naught and that we’re not going to have to do this again in a few months time if Iran is continuing to threaten access to the straits, if the regime is killing protesters again, if we’re seeing disturbing indications of the nuclear program? All of those are things that are kind of laid bare by the fact that this hasn’t been a one and done.
(07:42):
And that Iran’s ability to continue demonstrating its strengths in the region is real. And it just reminds me of a conversation I once had with a member of Congress where they asked me, what can we do to deny Iran a role in the region? And I knew what he was trying to say. He was trying to say the ability to project force outside of its borders to threaten shipping, to threaten its neighbors. But ultimately this comes back to a question of the Iranians live there, the Iranian government lives there, they will have a role and they will have the ability to do things in the region. The question is whether or not we can live with those things, whether or not we’ve got tools in place to counter those things. And I think that is actually a reality. This conflict is laying bare as the Iranians still have a lot of capabilities, not necessarily to win, but to persevere and persevering might be enough to really risk US interests long term.
Daniel Sternoff (08:35):
No, absolutely. Nonetheless, I think it’s pretty clear it’s in the interest of the United States as well as basically the entire world economy that the Strait of Hormuz has simply got to be open for energy transit. And so there’s really only two ways this is going to happen either with an agreement of some kind of a deal that the Iranians need to agree to. So just us unilaterally saying we’re done, but Iran doesn’t stop, doesn’t seem like that works or Hormuz is going to remain disrupted until it is pushed open by force. So maybe let’s talk about both of those scenarios, the military options to get maritime traffic moving and what a deal might look like. So let’s maybe start on the military side. So there’s speculation over the weekend that President Trump is mulling the seizure of Kharg Island or maybe even parts of the Iranian coastline, and maybe this is why this marine expeditionary unit is being sent from Okinawa. And at the same time, president Trump has called on other countries to join a coalition to help secure freedom of navigation through the strait. And he specifically named France, uk, Japan, Korea, and maybe somewhat surprisingly China. So how do you see both the military and the diplomatic options to force open the strait?
Richard Nephew (10:04):
Yeah, well, I think actually as the German defense minister setting in comments about this, what role would German and other military forces have to try and reopen the strait that the mighty US Navy can? And I think there was a little bit of attitude that may be creeping in there, but it’s a rather interesting question, what exactly would this maritime coalition do? And frankly, I don’t think the United States is asking for partners to come in because we lack the physical capabilities to target Iranian missile launchers, drone fleets, and launching points, mine layers and those sorts of things. I mean, these are all capabilities that we have the ability to counter, especially with the state of the Iranian Navy and IRGC Navy in particular at this point. I think the real reason why you want to bring in a coalition is you want ships that are not party to the conflict to be escorting other ships through in hopes that the Iranians won’t attack them.
(11:00):
And it’s possible that would be the Iranian response. It’s also possible the Iranians would try and negotiate with those countries individually for safe passages. Apparently has been underway with India, maybe underway with Pakistan as well. And so to my mind, I think there is a value potentially in having non aggressor fleets operating, but couple complications come with that, right? What are they going to do? Are they going to just simply sail around with those ships? Are they going to be soaking up incoming from IRGC batteries on the shore? Is their role to be to escort those various different vessels or is it to be actually engaging in counterforce and attacking missile launcher sites and whatnot on the shore of Iran right now? I don’t think that these countries are terribly interested in involving themselves at this point. So then you go back to a question of, okay, well what can the US military do alone?
(11:53):
And I think your question is a good one. At the end of the day though, I’m a little worried about the potential move to escalation in an unplanned way here. Taking Kharg Island, taking parts of the Iranian shoreline maybe stops those particular jurisdictions from being areas with which the Iranians can men the strait. But Iran’s missiles are longer range than that. Iran’s drones are longer range than that. You’re going to have to go a fair ways inland to try and stop Iran from being able to launch missiles. And I’m not sure the US is prepared to have 2,500 Marines going that much further inland to try and chase missile sites on the shore of the Persian Gulf. And certainly the case is also there with regard to Kharg. So I think a land incursion to try and stop these sorts of attacks likely doesn’t stop, but just simply moves them further inland and from which the Iranian’s can still strike vessels within the straits.
(12:49):
Now over time, the United States can almost certainly eliminate a lot of the offensive military threats going at the straits, but that does require time, and that’s the function that we’re now struggling with when you’re talking about how long the straits have been closed and the impact on global energy. So that shifts you to the diplomatic side. And I’m not sure the Iranians at this point believe that any deal will be honored by the United States or by Israel. And I think that probably has a big role to play in whatever diplomacy is involved. I also think that the president seems mighty to only accept unconditional surrender words that he was speaking not a week or so ago. So it strikes me that there aren’t really strong conditions at this point for a diplomatic solution, especially while people think that they’re still going to be able to achieve their ends militarily, you could imagine some kind of ceasefire to allow people to collect themselves, but from Iranian perspective, a ceasefire is much more likely to be advantageous to the United States in Israel and Gulf states to kind of collect themselves, get oil back in the market, reassure themselves strategically.
(13:50):
And I think that’s why the Iranians are going to be pretty reluctant until they’re really sure that from their perspective, everyone’s learned the risk of attacking Iran.
Daniel Sternoff (14:01):
So maybe let’s dig into that a little bit more in terms of what Iran might need or want in order to make a deal. So President Trump asserted over the weekend that Iran does want to make a deal, but the terms aren’t good enough yet. What would that look like from Iran’s perspective? What do you think a wounded Iran is asking for that? Especially if we’re fast forwarding three or four or five weeks and we still have energy transit disrupted, it might change the Trump administration’s attitude. So what do you think Iran would want to agree to a ceasefire?
Richard Nephew (14:47):
I think they’d want four things. Thing number one is they would also want unimpeded access to be able to sell oil, right? So part of the reason why they’re doing this is that they want leverage, but part of the reason is because they’ve been pinched on their ability to export oil for a while, although ironically, not so much now where theirs are the only ships that are going through and now they’re getting the benefit of much higher prices. So I can imagine they would say we would like some degree of absence of harassment either in sanctions or military terms from affecting our shipping. And that goes to the second thing, which is I think the Iranians would look for some kind of sanctions relief. I think they would be saying, okay, our nuclear program is not what it was because of your military strikes. So we don’t necessarily have the same conditions as we did for a JCPOA type deal, a nuclear deal we had back in 2015, which means also that we don’t have the requirements for it.
(15:39):
You don’t need to get sweeping nuclear changes. You obliterate our program, Mr. Trump, so now you can get us the sanctions relief in exchange for letting the straits go. I don’t think the United States is going to accept that, but I think the Iranians will be looking for some kind of significant sanctions relief as part of a ceasefire, at least at this point. I think third, they’d be looking for some kind of non-aggression assurance. This is going to be the biggest one of all because there’s no real way of verifying it. And I can imagine the Iranians saying themselves, we want this assurance, but we don’t actually trust it. We don’t think it’s going to be valid. We don’t think the Israelis or Israelis are going to sign to it. We don’t think the Americans are going to sign into it and actually honor it faithfully, but I think they’d be looking for it from a kind of a geostrategic standpoint so that way they can show everybody that the US isn’t allowed to do the same under its own conditions.
(16:27):
And then I think the fourth big thing is they’ll be looking for some kind of broader regional security arrangement, at least discussions along those lines. The Iranians, it’s interesting, have been pretty consistent since this conflict started and saying that part of the reason why it’s getting ugly is because of US base that are in the Persian Gulf in various different Gulf states, you might see the Iranians say, let’s have talks about some kind of change to the military status quo ante in the Persian Gulf. Now, I don’t think they’d be looking for that as a condition of ceasefire, but I think that they would be looking to at least start a conversation about what is the role of the United States in the region. And the ironic part about all that is that actually might have more tread with states in the Gulf now than it has in the past because they must be asking themselves what value US bases are if at this point it’s part of the reason why they’re being attacked.
Daniel Sternoff (17:19):
All of this sounds like it’s not going to move swiftly. I think very well what it is like to negotiate with the Iranians. And if we’re talking about non-aggression pact and sanctions relief, it would be with zero trust and I don’t even know who will be the mediator of that process. Maybe you have some thoughts on that. It sounds like even once the Trump administration decides that it wants to pursue some kind of an agreement like that for a comprehensive ceasefire, that this is weeks at a minimum. Do you agree with that?
Richard Nephew (18:01):
Yeah, that’s actually where I think this goes. I mean, when the president says they want to make a deal and people are talking about an agreement, I think what people would find radically quickly is that a deal is a lot harder to structure. So maybe what we’ll do is just have a ceasefire with no conditions attached to it, and that’s a problem From a US perspective, I think it’s a problem from Iranian perspective, but I think coming up with an actual negotiated solution is probably beyond the parties at this point. I think what’s much more likely is we’re just going to collectively be done here kind of decision. And you can imagine either the United States or Iran starting this, although I think it’s more likely the US will than the Iranians where there is literally just a statement of we have achieved our military objectives, now we are done.
(18:51):
And then there would be some kind of desultory continuing attacks, maybe one last drone strike in or one last US airstrike on a military base or something similar, but that basically it would be inconclusively resolved in that there wouldn’t be ongoing attacks, but there also wouldn’t be any confidence that they wouldn’t start again. And I think that’s a problem from a Gulf perspective, I think it’s a problem from a global energy perspective candidly, because then there would be no assurance that this wouldn’t erupt again when we find six weeks sense. There is some US concern with Iran’s nuclear program or where the Iranians were to be unhappy about a US vessel getting just this too close to Iranian territory. But I think that to me feels like a more reasonable diplomatic slash military outcome. At the moment, it’s not a deal. It’s not a military solution. It’s just we’re done here for a moment and that’s just going to create a whole lot of tension, probably lingers for quite some time in the Gulf and beyond.
Daniel Sternoff (19:56):
And that doesn’t sound like a recipe for a normalization of energy flows or energy investment or just a return to the status quo ante would seem increasingly remote in that world, which is not a wonderful thought. Maybe that’s a good place to end our conversation this morning because I think we have a lot more questions than answers, but in sum, it sounds like we need to buckle in for a longer resolution here. I suppose maybe a last question or comment, Richard, if there is a silver lining in this situation is that over the weekend when President Trump attacked Kharg Island, there still is this third rail of destroying energy infrastructure, and that is so far untouched. Do you agree that seems to be rules that people don’t want there to be lasting damages to the most important production and export facilities?
Richard Nephew (21:11):
Yeah, I think that’s right. Look, I’ve described it as a tacit bargain. I’m not the only one who has that. Between the parties, they’ve decided that this is an area they didn’t want to go into. And for reasons. Both the US and the Iranians have an interest in these energy facilities maintaining, I think Iranians want there to be a future for them and to be able to continue exporting oil over the long term. The United States wants the Iranians to not unleash what they could on oil and gas infrastructure on the western side of the Gulf. So I think that’s still kind of holding, and that says to me two things. One, it says that there is still a perspective that we’re not at total war at this point between the sides. I think you can see that in how the US is restraining itself also in ground troops and those sorts of things.
(21:58):
But I think it’s also, it speaks to the confidence that the Iranian system has. They still think that this is a problem set. They’re going to have to deal with six weeks, six months, six years from now, and they are not yet at the mode of thinking they need to shred Gulf energy supplies in order to really scare the United States at a continuing its attacks. That is an indication that we’re not at a point yet of unwillingness to consider those sorts of downside risks. So that from an energy perspective, that should give at least some sense that there is some sort of stability and desire for it among the parties, even if in the near term, the risks of there being an inadvertent escalation or an accident or a miscalculation are all as considerable as they’ve ever been.
Daniel Sternoff (22:43):
Well, thank you, Richard. I guess my final, final question, we’re speaking on March 16th. Do you think we will be speaking with this same level of disruption on April 16th?
Richard Nephew (22:56):
That’s a rough one. So if you’d said April Fool’s Day, I would’ve said yes to me. I think that this has gotten at least another couple of weeks in it. It wouldn’t shock me if tomorrow we woke up and there was reports that we’re done for now, we’ve reached that kind of ceasefire, but you’re just not seeing the kind of moves in those direction either by the US or by the Iranians at this point. That would give you that sort of sense. And I think some of the steps that have been taken, including the waiver on Russian oil sanctions that the US in place, the SPR releases that are coming forward, I think there’ll still be a hope on the US side that those will settle down oil prices to allow us to finish our objectives. We hear from the Israelis, they’ve still got a long list of targets in mind. So all that adds up to me to being, we’re not done yet, but a month from now probably feels too long. So I’d say about another two weeks or so of this. And then again, my scenario, my baseline is we get to a kind of unresolved ceasefire that then lingers for some period of time.
Daniel Sternoff (23:57):
Thank you, Richard. As always, your insights are spot on and extremely helpful, and we shall see, and I suspect we will be having more conversations before this is through. That’s it for this episode of Iran Conflict Brief, a limited series from the Columbia Energy Exchange Podcast. Thank you again, Richard Nephew and thank you for listening. The show is brought to you by the Center on Global Energy Policy at the Columbia University School of International and Public Affairs. I’m Daniel Sternoff. This podcast was produced by Mary Catherine O’Connor, Caroline Pitman and Kyu Lee. Greg Vilfranc engineered it. For more information about the show or the Center on Global Energy policy, visit us [email protected] or follow us on social media at Columbia U Energy. If you like this episode, leave us a rating on Apple, Spotify, or wherever you get your podcasts. You can also share it with a friend or colleague to help us reach more listeners. If you have any questions, comments, or feedback, we’d love to hear from you. Email us at [email protected]. Thanks for listening.