Last week, the Obama administration instructed the U.S. government to take all necessary steps to initiate the adoption process for the Iranian nuclear deal, as negotiated last July between Iran and the P5 + 1 nations. After receiving approval from the United Nations Security Council, Iran began to take all necessary steps to restrain its nuclear program, while the United States and Europe began issuing approved sanction waivers for Iranian energy and financial companies.

Last week, the Obama administration instructed the U.S. government to take all necessary steps to initiate the adoption process for the Iranian nuclear deal, as negotiated last July between Iran and the P5 + 1 nations. After receiving approval from the United Nations Security Council, Iran began to take all necessary steps to restrain its nuclear program, while the United States and Europe began issuing approved sanction waivers for Iranian energy and financial companies.

With the implementation of “Adoption Day,” Iran will now officially start reintegrating with the global economy, and bring an influx of oil and natural gas. With oil prices already at $45 dollars a barrel, the addition of Iranian petroleum further pressuring energy prices and competing for the Russian market share in Europe and Asia will have a profound impact on the geopolitical energy landscape.     

As one of the leading energy producers in the world, Iran is poised to drastically change the Eurasian energy structure. Currently, Iran has the fourth largest oil reserves (158 billion barrels), and second largest natural gas reserves (36 trillion cubic meters) in the world. The country is now expected to increase its oil production from 2.8 million barrels a day to 3.6 million barrels a day in the near term.

At a time when oil prices are already depressed, the influx of almost a million barrels a day will add to the global oil supply glut, at a time when Russia’s public finances are under severe economic pressure. Lifting sanctions on Iran will also aid its natural gas prospects, when a windfall of capital and technology enters the country to update Iran’s natural gas infrastructure. Although Iran will initially focus on domestic gas markets, the countries repositioning in the natural gas sector will challenge Russia’s market share in Europe, the Caucuses and Asia.

After international sanctions are lifted Iran will begin increasing its exports throughout its immediate neighborhood. Currently, Iran is committed to deliver 8.2 billion cubic meters annually to Pakistan via the Iran-Pakistan pipeline. In addition to exports to Pakistan, Iran has several options for additional petroleum exports, each with their own geopolitical consequences.

The first option includes increased exports to the European Union via the Trans-Anatolian Natural Gas Pipeline (TANAP) via Turkey. Already, Iran has expressed willingness to ship exports to Austria and Bulgaria via TANAP, two countries which are eager to diversify and decrease their consumption of Russian hydrocarbons. Meanwhile, China has also signaled that it is interested in increasing its oil and natural gas imports from Iran. With 80% of its oil imports passing through the Strait of Malacca, China is making an effort to increase its oil and liquefied natural gas (LNG) land supply lines. Like the Sino-Russian pipeline negotiated last year, China’s interest in Iran stems from its need to mitigate the risk associated with the Strait of Malacca.

No matter where Iran decides to export its hydrocarbon resources, the additional supply will diminish President Vladimir Putin’s hold on customers of Russian hydrocarbon products. The combination of deteriorating market share and sustained lower oil prices will greatly affect Russia’s economy. With oil and natural gas representing 68% of all Russian exports, a decrease in revenue will exacerbate existing economic instability.

With the threat of Iran’s encroachment into Russia’s sphere of energy influence, Putin will be prepared to act in order to maintain hegemony in European energy markets. A recent example is Russia’s June 2015 announcement that it purchased Armenia’s section of the Iran-Armenia natural gas pipeline, which was built to help Armenia reduce its dependence on Russian energy products. The threat of Iranian natural gas convinced leaders in the Kremlin that it was necessary to own Armenia’s supply route, thus controlling Iran’s market entry into the country.

Another dimension of Russia’s assertiveness will be its willingness and capability to use force as its main economic lifeline is threatened. Historically, Russia has financed foreign adventures when the price of oil was high – the 1979 Afghanistan invasion, 2008 war in Georgia and 2014 conflict in Ukraine all occurred when oil was at $100 a barrel or higher. When prices fell after the invasion of Afghanistan in the 1980’s, the Russians withdrew.  Meanwhile, former President of the Soviet Union Gorbachev’s Perestroika and the 2004 NATO enlargement occurred during low oil prices; the recent foray into Syria being an exception to the general trend. Putin has demonstrated recently that he is more than willing to use military force to challenge American hegemony in regions where Russia’s interests coincide. However, as short term prospects for oil and gas prices remain low, the sustainability of Putin’s aggression in other countries will be called into question.

Although Russia will continue to strive for great power status, the ability to project power may be transitory as its domestic economy continues to feel pressure from depressed energy prices and Western sanctions. Iranian hydrocarbons entering the European market should theoretically limit Putin’s financial ability to intervene abroad but whether this happens remains to be seen.