Sanc­tions or for­eign pol­icy: What is the main prob­lem of Iran’s oil in­dus­try?

Daily Sabah (Turkey) - - Opinion - OMID SHOKRI KALEHSAR* *Vis­it­ing re­search scholar in the Schar School of Pol­icy and Gov­ern­ment at Ge­orge Mason Univer­sity, holds a Ph.D. in in­ter­na­tional re­la­tions

The lack of bal­ance in sup­ply and de­mand in the global oil mar­ket, along with geopo­lit­i­cal events and re­duced eco­nomic growth of ma­jor oil-con­sum­ing coun­tries, are ef­fec­tive fac­tors in re­duc­ing oil prices. Af­ter the United States with­drew from the Joint Com­pre­hen­sive Plan of Ac­tion (JCPOA) in May 2018, sta­tis­tics from oil tanker track­ing com­pa­nies have shown that Iran sells lim­ited amounts of crude oil through se­cret means. But so far, no report has been pub­lished on how it re­ceives the money.

“The most se­vere stage of the sanc­tions was oil for food, but now we are in a sit­u­a­tion where these in­jus­tices and our stronghold­s do not even al­low the sale of a drop of oil for food and medicine,” Iran’s Vice Pres­i­dent Mo­ham­mad Bagher Nobakht said, adding, “even if oil is sold, there is no pos­si­bil­ity of fi­nan­cial ex­change.”

Fatih Birol, the ex­ec­u­tive di­rec­tor of the In­ter­na­tional En­ergy Agency (IEA), be­lieves that given the cur­rent mar­ket con­di­tions, the prices of oil and gas should be re­duced, say­ing that the mar­ket has entered the stage of cheap en­ergy sup­ply.

With the re­turn of Libya to the mar­ket and a pos­si­ble agree­ment with Iran if U.S. pres­i­den­tial chal­lenger Joe Bi­den wins the elec­tion, oil prices are ex­pected to de­crease again. That would mean Iran’s re­turn to the mar­ket would pro­vide an over­sup­ply re­sult­ing in a fur­ther de­cline in oil prices.

The lat­est report by Ke­pler Pe­tro­leum Pri­vate Lim­ited shows that the av­er­age Ira­nian oil ex­ports in the first eight months of this year were 284,000 bar­rels per day (bpd). Its oil ex­ports in the pe­riod be­fore the U.S. sanc­tions were im­posed were 2.5 mil­lion bpd, al­most nine times the cur­rent vol­ume of Ira­nian oil ex­ports. China and Syria are the only pub­lic cus­tomers of Ira­nian oil, but oil tanker track­ing com­pa­nies say Iran sells its oil se­cretly un­der the names of other coun­tries, in­clud­ing Malaysia and In­done­sia. The Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC) es­ti­mated Iran’s oil and oil ex­ports last year at about $18 bil­lion, down from more than $60 bil­lion in 2018.

Iran’s oil ex­ports in­creased sharply in Septem­ber de­spite the pres­sure from U.S. sanc­tions. Ac­cord­ing to oil tanker track­ing com­pa­nies, Iran’s oil ex­ports dou­bled from the pre­vi­ous month, 11% of which was very light oil, called con­den­sate.

Cit­ing new data from Tanker Track­ers, a com­pany that spe­cial­izes in track­ing ships and oil de­pots, Reuters claims that the des­ti­na­tion of al­most half of Iran’s oil ex­ports is un­clear be­cause it is trans­ported “by ship” by for­eign ves­sels which turn off their GPS.

“Iran’s ex­ports have been on the rise, and avail­able data show that Iran’s crude oil and con­den­sate ex­ports have reached about 1.5 mil­lion bar­rels per day,” Samir Madani, co­founder of Tanker Track­ers, told Reuters.

“Such a vol­ume of ex­ports is un­prece­dented in the last year and a half,” Madani said. The two other tanker track­ing com­pa­nies, who pre­ferred not to be named in the report, told Reuters that their data also showed that Iran’s oil ex­ports had in­creased but not to the ex­tent Tankers Track­ers said.

The U.S. could not drop Iran’s oil sales to zero. Ac­cord­ing to Iran’s first vice pres­i­dent, Eshaq Ja­hangiri, oil, as Iran’s main source of in­come, has been sub­ject to the sever­est sanc­tions. In pre­vi­ous sanc­tions, a sales ceil­ing was set at 1 mil­lion bar­rels of oil at a time when Iran was sell­ing up to 900,000. This time, the U.S. stated the Ira­ni­ans could not sell any oil, but thank­fully, Washington did not suc­ceed.

Main­tain­ing the frame­work of the coun­try and the econ­omy is im­por­tant to sup­port the weaker classes of so­ci­ety. Sen­si­tive con­di­tions and the com­plex­ity of af­fairs re­quire us to in­crease the re­silience of the peo­ple and the coun­try’s man­age­ment sys­tem, and this is not done by words alone.

BY­PASS­ING SANC­TIONS

By De­cem­ber 2018, Iran’s For­eign Min­is­ter Javad Zarif, who had trav­eled to neigh­bor­ing Qatar, com­mented on the sanc­tions im­posed on Doha by its neigh­bors, Saudi Ara­bia, the United Arab Emi­rates (UAE), Bahrain and Egypt. “Ob­vi­ously, we are un­der pres­sure be­cause of U.S. sanc­tions but will this change our poli­cies?” he asked. “I guar­an­tee that this will not hap­pen.”

Iran has a plan to re­duce the ef­fects of sanc­tions on oil ex­ports. Re­gard­ing U.S. sanc­tions against Iran, Zarif stressed that Tehran would im­prove in the face of these sanc­tions, say­ing, “I mean, there is al­ways a way to cir­cum­vent sanc­tions.”

“We have a doc­tor­ate in this field,” he stated, not­ing that oil sanc­tions af­fect the lives of or­di­nary peo­ple. “There­fore, the gov­ern­ment will do ev­ery­thing it can to sell oil to serve its cit­i­zens.” Zarif stressed that “non-re­newal of oil ex­emp­tions will not pre­vent the sale of Ira­nian oil.”

“Oil sanc­tions will be to the detri­ment of

or­di­nary cit­i­zens, and the gov­ern­ment will make ev­ery ef­fort to sell oil and meet the needs of its cit­i­zens,” he said.

The drop in oil prices due to the pos­si­ble en­try of Ira­nian oil into the mar­kets will also put pres­sure on the U.S. and Mid­dle East­ern pro­duc­ers, in which case OPEC would have to make changes to its strat­egy.

Bi­den will pro­tect any con­ces­sions made to Iran dur­ing the Don­ald Trump era, no mat­ter how small, which means that he will not im­pose sanc­tions on Iran.

Saudi Ara­bia’s lead­ers are re­luc­tant to com­pro­mise with Iran and will­ing to let Tehran suf­fer rather than be dam­aged by the in­creased pro­duc­tion.

Iran cur­rently has a pro­duc­tion ca­pac­ity of 2.7 mil­lion bpd and could ex­port 2.5 mil­lion bar­rels of oil within eight to 12 months if sanc­tions are lifted. “When the nu­clear deal was signed in 2015, Iran could not max­i­mize its oil ex­port ca­pac­ity un­til the sec­ond quar­ter of 2016,” Zarif said.

Un­like the U.S.-based RAPID In­sti­tute,

Pak­istan-based Ke­pler Pe­tro­leum pre­dicts that Bi­den will seek a new deal with Iran dur­ing his first term in of­fice to pre­vent U.S. oil pro­duc­ers from los­ing money once the U.S. econ­omy re­cov­ers.

“Re­turn­ing to the global oil mar­kets is Iran’s pri­or­ity,” Saeed Khat­i­bzadeh, a spokesman for Iran’s for­eign min­istry, told S&P Global Platts, an en­ergy news provider. “Nor­mal­iza­tion of trade re­la­tions is also a high pri­or­ity for Iran,” he said.

Pres­i­dent Trump has re­peat­edly stated in re­cent weeks that he is ready to reach an agree­ment with Iran in the short term. It seems that with the elec­tion of Bi­den or Trump, we should see a new agree­ment be­tween Iran and the U.S. re­sult­ing in Iran’s re­turn to the oil mar­ket.

With the out­break of the coro­n­avirus, the dy­nam­ics of the en­ergy mar­ket have also changed. Iran can in­crease its oil pro­duc­tion in the short term, but given the de­crease in de­mand due to the in­creased sup­ply, Iran should not ex­pect to eas­ily reach its

pro­duc­tion tar­gets. Iran will be al­lowed to trade oil be­fore the U.S. with­draws from the JCPOA, but it is un­likely it will be a leader in pro­duc­tion since dur­ing the pe­riod of sanc­tions it was de­prived of the ad­vanced tech­nol­ogy of for­eign com­pa­nies and fi­nan­cial re­sources.

If Iran does not change its for­eign pol­icy, con­tin­ues with its nu­clear pro­gram and new sanc­tions are im­posed on the oil in­dus­try, what con­di­tions would Iran face? Would the gray mar­ket help Iran again?

Iran must com­pletely change its for­eign pol­icy in or­der to avoid fu­ture sanc­tions. Ma­jor oil-pro­duc­ing coun­tries have pro­vided the con­di­tions for for­eign com­pa­nies to in­vest and are in­creas­ing pro­duc­tion ac­cord­ing to sched­ule, but Iran faced new sanc­tions or failed to meet cap­i­tal re­quire­ments when­ever it wanted to in­crease oil pro­duc­tion.

A man walks past a mu­ral painted on the outer walls of the for­mer U.S. Em­bassy in the Ira­nian cap­i­tal Tehran, Sept. 29, 2020.

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