Expert Brief: Iran, the Middle East and Strategies around Oil

Iran flag with oil pump

By Norman T. Roule

Norman T. Roule is a geopolitical and energy consultant who served for 34 years in the Central Intelligence Agency, managing numerous programs relating to Iran and the Middle East. He served as the National Intelligence Manager for Iran (NIM-I) at the ODNI from 2008 until 2017. As NIM-I, he was the principal Intelligence Community (IC) official responsible for overseeing all aspects of national intelligence policy and activities related to Iran, to include IC engagement on Iran issues with senior policymakers in the National Security Council and the Department of State.

The Middle East has demanded Washington’s attention on an almost weekly basis since President Biden took office in January. Since then, the White House has made the decision to speed up the withdrawal of U.S. troops from Afghanistan, has been faced with militia attacks in Iraq, Hamas attacks on Israel, the collapse of Lebanon, political instability in Jordan, OPEC issues, a political crisis in Tunisia, Houthi rejection of diplomacy in Yemen, Iran’s refusal to return to the nuclear deal, and most recently, attacks believed to be perpetrated by Iran against  tanker ships. This of course, is occurring as COVID continues to ravage regional economies and undermine the stability of fragile states. And let’s not forget that Al Qaeda and ISIS remain active throughout the region.

The Cipher Brief tapped Expert Norman Roule for insights into what all of this means for the Biden Administration and the rest of us in the coming months.

Norman T. Roule, Middle East Expert, Former National Intelligence Manager for Iran, ODNI

Norman Roule served for 34-years in the Central Intelligence Agency, managing numerous programs relating to Iran and the Middle East.   He served as the National Intelligence Manager for Iran (NIM-I) at the Office of the Director of National Intelligence from November 2008 until September 2017.  As NIM-I, he was the principal Intelligence Community (IC) official responsible for overseeing all aspects of national intelligence policy and activities related to Iran, to include IC engagement on Iran issues with senior policy makers in the National Security Council and the Department of State.

The Cipher Brief: Let’s start broadly.  The Biden Administration has had a lot to deal with in the Middle East since the president took office in January.  How are they doing?

Roule:  I think it’s too early to assesses the administration’s performance. The Biden administration arrived with several broad goals. It promised to reduce American military forces in the region, rely more on diplomacy and cooperation with Europe to resolve regional problems, and adjust relations with long-time regional partners like Israel and Saudi Arabia. But the challenges of the region are long-standing and routinely intrude upon Washington’s foreign policy agenda. And U.S. foreign policy in the Middle East has become a sharply partisan issue.

The administration’s response to events that have transpired in the region since the beginning of the year, has reassured those who looked for a greater emphasis on diplomacy. Washington assigned experienced envoys to contain multi-party issues and coordinated with Europe to limit U.S. involvement. The Secretary of State and his deputy have made high-profile visits to the region. The President has hosted such leaders as the King of Jordan and the Prime Minister of Iraq. And National Security Council engagement with Israel is routine. U.S. military shifts have taken place, but the administration still prioritizes security cooperation with regional partners. However, the U.S. withdrawal from Afghanistan is perceived by many as precipitous. Others worry that the U.S. has joined Europe in overlooking Iran’s attempts to change the political DNA of Iraq, Syria, and Yemen. The U.S. response to the Houthi’s use of Iran-supplied missiles and drones against civilian targets remains mainly rhetorical despite the lethal threat this poses to Saudis, Americans, and others living in the Kingdom.

The Cipher Brief:  That’s a sobering review. Is there any good news from the region for this administration?

Roule:  Actually, quite a bit. The administration has found that regional states will collaborate on complex issues beyond the region. Qatar plays a unique role in U.S. Afghan policy. The United Arab Emirates and Saudi Arabia are essential partners in resolving East African crises.

Regional leaders place great value on security cooperation as well as robust engagement with the U.S. private sector. Al-Qaeda and ISIS remain a threat, but at a fraction of their past potency.

Long-overdue political and economic reforms continue, albeit not at the pace or scale some Western observers seek. Saudi Arabia has introduced notable human rights reforms. A growing number of countries in the region have undertaken high-profile efforts to combat corruption and reshape their economies. Oman has begun the long road to restructuring its economy. Iraq and Libya remain intact despite their fractious polities.

I think the administration has also been impressed by the efforts of the Gulf states to diversify their economies, particularly in the area of green energy. The visits by U.S. Climate Envoy Secretary Kerry have been quite popular, probably more than some expected. I see plenty of momentum for growth here. 

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The Cipher Brief: The Iranian nuclear talks appear to have stalled. How did this happen? And what will it take for Iran to return to the deal?

Roule: Iran will return to the nuclear deal when it first believes it has wrung every concession out of the West in order to shield its economy from sanctions that could follow its non-nuclear aggression. It will also seek to ensure that it has fatally compromised the U.S. ability to reimpose sanctions within the nuclear deal itself. The Biden administration pledged a return to the deal as written, an end to the maximum pressure policy of its predecessor, and a rejection of regime change. More broadly, it also announced an intention to reduce the U.S. military presence in the region, a reassessment of Washington’s relationship with Israel and Saudi Arabia, and support for regional engagement with Iran. Some believe that the administration may even have turned a blind eye to Chinese purchases of Iranian oil as a signal to Tehran of Washington’s goodwill. If reasonable leaders ruled Iran, all of this should have produced an early return to the deal. But Iran’s leaders are rarely seen as reasonable. Iran could have chosen a fast return to the deal. Instead, it pushed for what all members of the P5+1 agree are unreasonable demands.

At this point, conditions aren’t favorable for an Iranian return to the deal in the near term. First, Tehran has pocketed all the benefits offered by the Biden administration’s initial approach without any concessions of its own.

We should also consider that Iran’s leaders may not want to return to the deal. Tehran’s primary goal in the 2015 nuclear deal was to obtain sanctions protections against the most vulnerable sectors of its economy in exchange for constraints on its civilian nuclear program. Tehran found that an end of nuclear sanctions did not solve the economic problems which produced domestic unrest, nor did the imposition of sanctions threaten the regime. Sanctions indeed constrained Iran’s ability to support proxies in the region, but even this was tolerable for the regime.

Next, Iran’s economy has stabilized somewhat in recent months. It remains in terrible shape but not so bad that the survival of the system is in question.

Last, we need to remember that Iran has historically offered concessions when confronted by a united international threat. Whatever your views on the nuclear deal, its very existence fragments international unity against Iran, which has always been a critical goal for Iran’s leaders. Support of the deal may bring us closer to Europe, Russia, and China but inevitably make regional partners believe we have ignored their valid security interests since there is little reason to believe Iran will moderate its non-nuclear behavior. Opposition to the nuclear talks may win support from Israel and Iran’s neighbors but it also invites friction with Europe, Russia, and China. These countries generally reject non-economic coercion against Iran and say relatively little about Iran’s regional adventurism.

The Cipher Brief: With a new president, will Iran’s new leadership continue to participate in the nuclear talks?  What will it take for Iran to return to the deal?

Roule: I believe Tehran will remain in the talks, but it will likely use the coming weeks to project defiance and even a willingness to walk away. The developing crisis over Iran’s naval attacks in the Arabian Sea may also postpone engagement. But for Iran, talks are a net positive. In addition to significant sanctions relief, the talks allow Iran – a mid-sized country – to routinely engage the attention of the world’s powers and play these actors against each other. This engagement also brings de facto recognition of the Raisi government, no small thing given his bloody background. The talks allow the Raisi government to argue directly with senior European counterparts that new sanctions for its many non-nuclear crimes would prevent it from returning to the nuclear deal. Last, the talks will give the Raisi government a platform for defiant rhetoric that will unsettle its adversaries and satisfy domestic supporters.

The Cipher Brief:  So, what circumstances would compel Iran to return to the deal?

Roule:  I can think of two paths that lead to an Iranian return once the new regime has vented defiant rhetoric. First, Tehran would need to believe that its rejection of the deal and malign regional actions had unified the international community to collectively support renewed economic pressure. Second, if Iran’s economy or political dynamic suffers a downturn that Tehran’s leaders perceive as leading to the downfall of the Islamic Republic. Either will need to include face-saving concessions.

The Cipher Brief: How should we look at current unrest in Iran?

Roule: The ongoing unrest shows no sign of being a near-term threat to the regime.  The crowd sizes appear manageable and anti-regime violence has so far been minimal. Security forces are relatively well organized and they are unsympathetic to protestors. The main weakness of protest remains that the opposition lacks direction, leadership, and support by labor groups. There appear to be no external or internal power centers capable of challenging the Supreme Leader.

We shouldn’t overlook the fact that many Iranians do support the regime. Despite a historically low turnout and Raisi’s admitted record of blood, eighteen million Iranians voted for him. It has become routine to see videos from Iran in which women argue that they cannot be forced to wear a hijab. But the same videos show other Iranian women (and men) asserting that failure to do so violates Iranian law and culture.

The current unrest did have aspects that likely worry Tehran. Oil workers put down their tools, and sympathy strikes reportedly erupted in major cities, albeit not on a scale that threatened the regime. The grievances of the Iranian people are so reasonable that they are increasingly acknowledged as such by government officials. But conditions in Iran are unlikely to improve. COVID continues to wreak havoc while climate change makes water and electricity shortages more painful. For these reasons, unrest will continue and probably intensify.

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The Cipher Brief: What do you expect President Raisi to accomplish domestically, regionally, and internationally in his first 100 days in office?

Roule: Domestically, he will take steps to show how he will sustain Iran’s revolutionary spirit during what many believe to be a period of transition to a new generation of leaders. We will see this initially play out in his ministerial selections as part of a broader campaign to staff the bureaucracy with ideologically sound personnel, especially those with a background in the Revolutionary Guard. Security services and the military are very likely to see strong support. He will want to show that he is taking steps to address COVID and the economy. Programs directed at the poor are likely to be a priority, but he will have no sympathy for protestors. I wouldn’t be surprised if he announced an anti-corruption campaign and targeted members of the Rouhani administration for its initial investigations. We will also continue to see efforts to prepare Iran’s oil sector so that Tehran can quickly ramp up oil sales once sanctions end. Last, he is likely to support growing regime control of the internet. A bill calling for such control is currently before the parliament.

The Cipher Brief:  What about foreign policy?

Roule:  I don’t anticipate many changes in foreign policy. Raisi will mouth support for regional engagement but will maintain a defiant attitude towards the West, animus toward the U.S., support for proxies, and suspicion – but likely not rejection – of the nuclear talks. We need to be clear that he sees any sanctions relief as a transactional issue. Much as in 2015, Tehran will be clear that it will not allow a new deal to transform Iran’s society or its relations with the West.

The Cipher Brief: What are your thoughts on what would constitute an effective U.S. strategy to deter Iran’s regional activities, such as continued attacks on maritime trade, proxy support for attacks on Saudi Arabia, and activities in Yemen and Syria?  Can you imagine a scenario when the U.S. might engage militarily?

Roule: Our strategy must involve our international partners. We should avoid anything that makes it appear as if this is a U.S-Iran conflict instead of Iranian actions that threaten multiple countries and their citizens. The question becomes, will the international community join us or stand back while the U.S. takes the hard steps needed to contain Iran. Sanctions certainly deprive Iran of resources it would use for its proxies, but sanctions alone will not end Iran’s belligerence. The

The Cipher Brief:  What are Iran’s likely plans in Afghanistan in the wake of the U.S. withdrawal? What worries you the most?

Roule: There is plenty about Afghanistan to worry everyone, but I won’t dwell on the issues that are covered well in The Cipher Brief by others.  Iran has enjoyed the security stability that came with our presence. Now they have the Taliban on their border. Qods Force commander Esmail Qaani has considerable experience in Afghanistan. Iran’s security forces will likely engage the Taliban, Afghan governments, and warlords in equal measure to ensure that Iran can exert some influence over each. Iran is likely to transfer some portion of its Afghan proxies in Syria to western Afghanistan to protect Iran’s interests.

One issue that concerns me is the fate of the al-Qaeda cell in Iran. Tehran has enabled an Al-Qaeda presence on its territory for years without any international cost. That presence may well choose to migrate back to Afghanistan to reconstitute its former power center. The international community should hold Iran responsible if this happens. After all of the blood and treasure spent in the war on terror, we cannot tolerate Iran enabling al-Qaeda’s resurgence.

The Cipher Brief:  It feels like that would be an incredible regression.  Let’s shift to energy issues. Where do energy markets stand in the wake of the OPEC deal? And what do you think are the main drivers?

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Roule: Three baskets of drivers now define energy markets. First, the fundamentals. Here we are watching steady draws on stockpiles, production remains below what the market could absorb, and supplies will be tight for the remainder of the year. U.S. producers appear generally focused on return on equity vice expansion, which will likely mean that we will produce around two million BPD of oil less this year than last year. U.S. rig count is about double what it was a year ago at this time but is growing only slowly. It likely dropped slightly a week ago. Capital investment in the oil industry plummeted in 2020. Shareholders are pressing company leaders to use profits from restored oil prices to invest in green technology. OPEC policy remains conservative in the face of variables including; when Iran and Venezuela will resume production, the question of whether inflation has returned, and the impact of investor speculation.

Second, COVID is here to stay even in the best-case scenarios. The international community has failed to come close to a uniform approach to social distancing, travel, and economic reopening. We tend to look at this through a national perspective, but it may be insightful to look regionally to see how COVID-D shuts down specific industries as it spreads globally. Fresh COVID lockdowns in China have combined with signs of a decline in Chinese manufacturing to restrain prices.

Finally, geopolitical developments have generally had only a temporary impact on price pressures, but I worry about events in the Middle East. Expansion of Iranian attacks in strategic waterways with significant commercial and energy traffic may be more consequential. Insurance costs may increase for an industry with tight profit margins. Worse, attacks against only a few large container ships would disrupt global supply chains. We are moving into a new age when the importance of the Middle East may be as significant in terms of transportation security as it is in terms of energy.

The Cipher Brief:  So, let’s put you on the spot. What is your outlook for prices in the coming months?

Roule: Let me give this my best shot. Absent a sudden economic downturn, widespread COVID lockdowns, or conflict in the Middle East, we should see a continuation of the upward price velocity seen over recent months. This trend should sustain prices in the mid $70s and even low $80s. Several factors make upward movement beyond that problematic. First, OPEC leaders would be reluctant to invite the inflationary (and thus political) pressures such a spike would entail.  The Saudis will continue to push for market stability which dominates their strategy.  Second, India – and possibly China – would draw upon their strategic reserves if prices moved that high. Finally, such a price would draw out producers in the U.S. and OPEC + who would not be able to pass on a chance for a spike in revenue.

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