Putin's Oil Slick

A possible energy deal between Russia and Iran could torpedo U.S. nuclear talks with Iran

Russia has apparently barged into America's nuclear negotiations with Iran, and is threatening to undermine the U.S.-led sanctions effort by working on a new oil deal with Tehran.

While any such deal could offer some short-term financial succor to Iran, and score a geopolitical victory for Russia, it would create a whole host of headaches elsewhere.

A potential energy pact between Moscow and Tehran promises to complicate the Obama administration's efforts to forestall fresh Iran sanctions coming out of Congress. If the deal comes to pass, and is allowed to stand, it could also undermine the existing sanctions regime on Iran. But the oil deal also raises questions about Russia's long-term strategy in the region.

According to a Reuters report, Russia and Iran are close to finalizing an oil-barter deal which would see Moscow trade unspecified goods to Tehran in exchange for about 500,000 barrels of oil a day -- roughly half of Iran's battered current export level. At current prices, that much oil would be worth about $1.5 billion a month.

Russia doesn't need the oil - it has plenty of its own. So the idea is that it would be shipped off from Iran. Russian and Iranian officials told Reuters that they expect to finalize the deal soon, regardless of what happens in the Geneva negotiations over Iran's nuclear program.

Russia has a few obvious incentives to make such a deal: It puts Moscow square in the center of international efforts to defang Iran's nuclear program, and sends a clear signal to the U.S. that it will push back against Western efforts to increase economic pressure on the regime, all while poking the Obama administration in the eye.

"It's a double win: He weakens and embarrasses Obama, and puts himself in the thick of things" regarding Iran's nuclear future, said Amy Myers Jaffe, executive director of Energy and Sustainability at the University of California, Davis.

But the prospective oil deal is also a bit of a puzzler. Adding a big chunk of new Iranian supply to the global oil market would likely push crude oil prices down -- or at the very least take the froth off of historically-pricey crude. That is exactly what Russia, whose budgetary health depends on oil revenues derived from prices that are as high as possible, has long sought to avoid.

And especially for Iran, the deal carries plenty of risks. Tehran agreed to talk about suspending aspects of its nuclear program in large part because it hoped to win some relief from the crippling economic pressure caused by the U.S. and European sanctions on oil exports. On Friday, Iranian and Western negotiators resolved most of the outstanding issues needed to move ahead with the interim nuclear deal.

But inking an ambitious deal with Russia to export 50% more than it now does will only give ammunition to lawmakers in the U.S. who are champing at the bit to tighten the screws on Iran. Iran, for its part, has warned that any fresh round of sanctions will be a deal-breaker for nuclear talks. And the Senate now has a nearly filibuster-proof bill that would ratchet up sanctions.

"This deal is a jaw-dropper, and will make it a lot tougher for the Obama administration to veto that bill now," said Mark Dubowitz, executive director of the Foundation for the Defense of Democracies, a big advocate of tougher sanctions on Iran.

"The market apparently no longer has to fear the economic minefield put around Iran. This puts lie to the claim that you can turn sanctions on and off like a spigot," he added.

A senate aide said that the prospective Russian-Iranian oil deal underscores how the sanctions regime on Iran is actually unraveling, thus reducing U.S. leverage.

"The longer the Senate waits to take action, the less likely it will be our diplomats can reach a deal that actually achieves our objectives," he said.

Iran's oil-dependent economy has been hammered by two years of Western sanctions on its energy exports. Even much of the oil that it does sell is through a barter arrangement, or in the expectation of future payments. Iran's cash crunch is acute. "Iran has to find a way to accommodate more exports: this is the reason behind this," an Iranian official told Reuters.

The future of Iranian oil production is also at stake. Sanctions have threatened the shut-in of a lot of Iranian oil fields, because the country simply cannot export or store everything it normally produces. Some countries can shut down production and start it up a few years later with few ill effects, but fields that rely on gas injection to maintain pressure could go into terminal decline if shut down, said Jaffe. That gives Iran a reason beyond short-term barter gains to start shipping more oil.

But it also raises questions about Russia's strategy in the Middle East and Mediterranean. Russian companies, including Gazprom, have been trying to elbow into the nascent Eastern Mediterranean natural-gas boom; Gazprom in particular is trying to finalize a deal to export Israeli gas, and Vladimir Putin has cozied up to Israeli Prime Minister Benyamin Netanyahu. Bolstering Iran won't help Russia's new-look policy in that part of the world.

It also could have the effect of jeopardizing future Russian-Saudi relations, since any Russian moves to bolster global oil supplies could collide with Saudi budget imperatives. International support for Shiite Iran is anathema to the Saudis - Riyadh has gone ballistic at the U.S., its long-time security blanket, over the Geneva talks.

The Russian Embassy in Washington, D.C., and the Iranian mission to the United Nations did not respond to requests for comments on the purported deal. Iranian oil officials said over the weekend only that there was no final agreement for an oil-barter deal, according to Iranian news wires.

UPDATE: A White House spokesperson said over the weekend that the reports of the deal still aren't confirmed. "If true, however, such a deal would raise serious concerns as it would be inconsistent with the terms of the P5 + 1 Joint Plan of Action and could potentially trigger U.S. sanctions," the spokesperson said.

Despite the risks of blowback from Washington, some Russia watchers see the prospective deal as being consistent with Putin's desire to take pressure off Iran that his predecessor had supported. And Russia has long maintained that U.S. and European sanctions on Iran's oil exports are unilateral, punitive measures-unlike the softer penalties hammered out by the United Nations security council.

"Negotiating a deal that would relieve some of the pressure on Iran without violating UN sanctions would be in line with this policy," said Simon Saradzhyan, a research fellow at Harvard Kennedy School's Belfer Center.


John Hudson contributed to this report.

This story was updated Jan. 12, 2014.




Acquitted in Court, Still Blacklisted by the U.S.

The United States sanctioned Ante Gotovina when he was a fugitive fleeing war crimes charges. Now he's a free man, but still on the list.

Even though he won his case in an appeals court over a year ago, former Croatian general Ante Gotovina is still stuck on a U.S. government blacklist.

That's a problem for the former military man because -- having put the war crimes charges behind him -- he wants to get into the fishing business.

Gotovina was put on the list by President George W. Bush in 2003 because he was indicted by the International Criminal Tribunal for the former Yugoslavia. He was accused of committing war crimes and crimes against humanity in the Balkan war in the 1990s. Gotovina was a fugitive at the time, but much has changed since then. In 2005, he was arrested in the Canary Islands; then he stood trial and was convicted in 2011; and in November 2012, that decision was overturned on appeal. Now, Gotovina is a free man.

Gotovina, who lives in Croatia, recently invested in a tuna farming company and has secured a loan from a Croatian bank, according to local press reports. But the big market for tuna isn't Croatia; it's Japan. Therein lies the rub. It's difficult -- if not impossible -- to do international business deals while under economic sanctions from the United States. The sanctioned person's assets can be frozen if they are sent to an international bank, and it's illegal for U.S. companies to do business with anyone on the list.

"In theory, if you sent a hundred dollars to him, you would be in breach of sanctions," said Josko Paro, the Croatian ambassador to the United States.

Gotovina's case highlights the broad, unilateral power of the U.S. sanctions regime. There is no judge or objective authority that reviews the designations or culls the list. A small office in the Department of the Treasury, under the authority of the president, is in charge of putting people on the list. If you want to be off the list, you have to petition the same office. Petitioners aren't entitled to a hearing, to see the evidence against them, or even to a prompt response. People trying to get off the list often wait years for a decision.

The U.S. sanctions program has evolved from broad trade embargoes, like the one against Cuba, to a much more targeted approach. Individuals are often singled out for supporting dictatorships, trading illegal weapons, or benefiting from the international drug trade. This new approach has been very successful at applying pressure to terrorist organizations and drug cartels. Most recently, it has been credited with bringing Iran to the table to negotiate over its nuclear program.

But Gotovina's case isn't the first one to highlight the lack of recourse, or at least timely recourse, for people put on the list. For instance, several people have been taken off the United Nations sanctions list for lack of evidence, but remain on the U.S. list. Saudi businessman Yassin Abdullah Kadi, who was sanctioned by the U.N. and the United States for his alleged association with Osama bin Laden and al Qaeda, remains on the U.S. list even though the U.N. and the European courts have taken him off. Other people have been sentenced to prison in other jurisdictions or have died, but their names remain on the list. Bin Laden, for instance, is still on the U.S. rolls.

Gotovina's defense attorney at the U.N. tribunal, Greg Kehoe, said he doesn't know of any other reason that his former client would be on the list. He said others who were acquitted at the tribunal were removed immediately.

"Having a situation where everybody is guessing why this person hasn't been removed from the list -- it just doesn't seem to me to be a fair thing to do," said Kehoe, who is a partner at Greenberg Traurig.

Croatian diplomats have appealed to the U.S. government several times on behalf of Gotovina, who is a national hero in Croatia, before he filed a lawsuit this week. But to no avail.

"There are dire consequences to the business interest of our citizen here," said Paro, the Croatian ambassador.

"I'm surprised this matter was not handled diplomatically, and that it went to litigation," said attorney Mark Vlasic, a former prosecutor at the Yugoslav war crimes tribunal and an attorney with Madison Law & Strategy Group.

Gotovina's lawyers sued on Monday, Jan. 6, to get a court to compel the U.S. government to make a decision about his case. They say they petitioned the Treasury Department in April and again in August 2013, but have had no substantive response. Since Gotovina's case has already been tried and the United States has accepted the result, his lawyers say he should already be off the list.

"He shouldn't have had to hire us to get off the list," said Stephen McHale, a partner at Patton Boggs, a well-connected Washington law firm known for its lobbying and regulatory practice.

"We should never have to even go to them," McHale said. "Our view is they should have done this on their own."

A spokeswoman for the Treasury Department office that oversees economic sanctions declined to comment on Gotovina's case.

If the case goes to court, the judge could toss out the case or order the Treasury Department to take him off the list. Treasury could also decide to rule on his case in the meantime. Until then, he remains in blacklist purgatory.

"We have never received any logical explanation for the delay," said Paro. "The only thing that we have heard is that it takes time."