Oil markets continued their dramatic plunge Monday, dropping more than 30 percent after a rift between Russia and Saudi Arabia led to the two nations failing to agree on production cuts amid uncertainties surrounding a worldwide outbreak of the novel coronavirus. Confirmed COVID-19 cases surpassed 113,000 on Monday, with the vast majority of infections in the diseases' country of origin, China, but Iran's own struggle proving particularly deadly.
The Iranian Health Ministry reported Monday that the country had experienced a total of 7,161 COVID-19 cases and raised the death toll to 237, behind only China's roughly 3,120 deaths and Italy's 463. The outbreak has infiltrated elite government circles and disrupted life for millions of Iranians already suffering the side effects of U.S. sanctions that severely restrict the Islamic Republic's ability to conduct trade abroad.
In some ways, the embargo actually insulates Iran from the shock of oil prices collapsing, as Kamiar Mohaddes, a macroeconomist at Cambridge University's Cambridge Judge Business School, pointed out. He told Newsweek that "sanctions have limited exports of oil severely, so Iran's economy is actually much more diversified than its neighbors."
"Ironically, when I looked last night at the oil prices, I thought to myself this is actually one good news about sanctions for Iran," Mohaddes, who also serves as fellow at King's College London, said. "Given the situation, the oil crash is actually the least of Iran's problems."
Instead, Mohaddes noted, it was the overall economic slowdown fueled by COVID-19 concerns that is likely to further sabotage the Iranian economy at a critical time for potential growth. March 20 marks Nowruz, the Iranian New Year, and a crucial period for commerce that may be stifled by lockdowns and quarantines intended to curb the lightning spread of COVID-19.
Even combining all of Iran's ongoing crises, Mohaddes told Newsweek, "The Iranian economy was predicted to recover." Today, however, "The outlook does not look that bright anymore."
[caption id="" align="alignnone" width="790"]
Iranian Petroleum Ministry officials attend a videoconference in which they discussed with Minister Bijan Namdar Zangeneh ways to prevent the spread of the coronavirus at oil, gas, refining and petrochemical operations zones, March 6. Iranian Ministry of Petroleum[/caption]And it could be some time before the so-called "price war" among members of a divided Organization of the Petroleum Exporting Countries (OPEC) and Russia is resolved.
OPEC includes Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Iran and Venezuela have been exempt from agreed output restrictions due to sanctions imposed on their governments, while Libya too has been allowed to operate without limit due to the country's ongoing civil war.
Russia, which competes with Saudi Arabia for the position of world's second-largest oil exporter behind the U.S., has cooperated with OPEC since 2016 in a bid to better regulate the global market, generally limiting production and keeping prices high. This proved a boon for U.S. shale oil markets that have grown rapidly and now the effects of a lasting inability for Moscow and Riyadh to compromise will likely be felt from Washington to Tehran.
"Good for the consumer, gasoline prices coming down!" President Donald Trump tweeted Monday. "Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!"
In Iran, citizens have long had access to cheap fuel due to subsidies that partially bound the country's economy to its petroleum sector. An attempt in November by Iranian President Hassan Rounani to begin transitioning to a more stable, welfare-based economy by removing these subsidies was met with massive, sometimes violent demonstrations that were crushed by security forces.
But an ongoing economic malaise and frustrations toward government mismanagement, such as the tragic accidental shootdown of Ukraine International Airlines Flight 752 and the missile barrage on Iraqi bases housing U.S. personnel in response to the January assassination of Major General Qassem Soleimani, has prompted continued dissatisfaction. Instability in global finance and trade might only spark further unrest at home, especially with little prospects for a quick resolution.
"The oil market has been left uncared for and there is no management," Iran's former OPEC Governor Mohammad Ali Khatibi told the semi-official Tasnim News Agency on Monday. "As long as the market remains as it is, the oil price situation will not improve."
In an interview aired Sunday by Bloomberg News, Iranian Oil Minister Bijan Namdar Zanganeh described the outcome of Friday's contentious meeting between OPEC and non-OPEC nations as "unexpected." He hoped for an early "compromise" solution between the oil-exporting group and Moscow, which has otherwise defended Tehran against U.S. sanctions and backed their mutual ally in Syria's civil war, as well.
"The effect of the coronavirus in the international economy and the distribution in demand for oil is a reality and it has a negative effect in the demand side and this imbalance in the market mainly comes from this virus, the coronavirus," Zanganeh said. "Some assessment says that this is not a long difficulty and in the coming months we will have some change and it will be controlled."
In Iran, he noted there is "no important reliable oil-exporting avenue, not because of the coronavirus, because of the sanctions," which he said the country has managed to resist as part of a "brilliant achievement" to sustain its economy.
"Of course this has a negative effect on Iranian exports totally, but not like others because we are not exporting so much," Zanganeh said of the virus scare.
The oil minister declined to reveal how much oil the country has been selling, stating only that the U.S. has so far failed in its maximum pressure campaign to cut Iranian exports to zero. Trump's administration has steadily rolled out sanctions against Iran since the White House pulled out of a 2015 nuclear deal in May 2018.
While the accord remains endorsed by fellow signatories, including China, France, Germany, Russia and the United Kingdom, Trump has argued that the agreement did no go far enough to curb Iran's support for foreign militias and missile development. Saudi Arabia, Iran's top regional rival, was among the few world powers to applaud the U.S. exit.
As Newsweek reported last month, the unilateral U.S. sanctions that followed have hampered Iran's access to potentially life-saving medicine and humanitarian supplies as certain banks and businesses avoided the country for fear of triggering punishment from Washington. The State Department announced days later that it had formally conveyed an "offer of support to the Iranian people" through the Swiss government.
This measure, nor Europe's introduction of sanctions-dodging special trade vehicles, were on track to substitute the billions of dollars in sanctions relief originally outlined in the nuclear deal commitment. Mohaddes predicted more suffering for those least-equipped to handle it in Iran.
"What is clear to me is that the sanctions, the coronavirus and the slow down in oil markets are clearly going to have an impact on the most vulnerable in Iranian society," Mohaddes told Newsweek.
