IRAN UNDER SANCTIONS - U.S. Sanctions and Iran's Energy SARA VAKHSHOURI - SVB Energy International
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IRAN UNDERIRAN UNDER
SANCTIONS
SANCTIONS
U.S. Sanctions and
U.S. Sanctions
Iran’s Energy Strategy
and Iran’s Energy
SARA VAKHSHOURI
Strategy
SARA VAKHSHOURIABOUT IRAN UNDER SANCTIONS Iran’s economy has been under sanctions in one form or another since the 1979 revolution. Yet little systematic knowledge exists on the short- and medium-term impacts of sanctions on the growth patterns of the Iranian economy, the general welfare of its people in the cities and rural areas, societal dynamics, civic space, and the country’s environment. The focus has often been on a few metrics that flare up with tightening of sanctions: currency depreciation, inflation, and recession, which are then followed by increases in unemployment and poverty. But the more comprehensive picture is lost in political cacophony around the policy’s merits. This is the gap that SAIS is filling with its Iran Under Sanctions project, which is a 360-degree in-depth view on the implications of sanctions on Iran. This first-of-its-kind research provides for an instructive case study on the use of sanctions as a tool of statecraft. For any questions or feedback on the project, please reach out to Ali Vaez at avaez2@jh.edu. ABOUT THE AUTHOR Sara Vakhshouri is the founder and president of SVB Energy International, a strategic energy consulting firm with offices in Washington, DC, and Dubai. She has more than two decades of experience working in the energy industry and has extensive experience in global energy market studies, energy strategy, energy security, and geopolitical risk. She has consulted with numerous public and private entities, as well as policy leaders and international organizations, including the International Monetary Fund, the World Bank, the International Energy Agency (IEA), and the US Energy Information Administration (EIA). Vakhshouri has been based in Washington, DC, since 2009 and has advised US, European, Indian, Japanese and GCC governments, investment banks, financial institutions, law firms, and interna- tional corporations. She is currently a member of the Energy Task Force of the Cyprus Climate Initiative, which was launched and initiated by the president of the Republic of Cyprus. She has worked with multiple think tanks and educational organizations such as the Oxford Ener- gy Institute; Harvard University’s Kennedy School; the Energy, Economics, and Security Program at the Center for a New American Security (CNAS); and the Atlantic Council’s Global Energy Cen- ter. She is a professor of energy security at the Institute of World Politics and also a member of the Middle East Petroleum Club. ACKNOWLEDGMENT I would like to express my deepest gratitude to those who helped with the completion of this re- port and particularly to the SAIS Initiative for Research on Contemporary Iran for giving me the opportunity to collaborate with its Iran Under Sanctions project. I also would like to extend my appreciation to H.E. Dr. Luay Al-Khatteeb, Iraq’s former Electricity Minister and member of the Federal Energy Council in the Government of Adil Abdul-Mahdi, for sharing his generous time and valuable insights on Iran-Iraq energy relations. - Sara Vakhshouri The SAIS Initiative for Research on Contemporary Iran Johns Hopkins University Washington, DC Copyright 2020 All rights reserved p. 2 IRAN UNDER SANCTIONS
Inflation Targeting in the Time of Sanctions and Pandemic?
TABLE OF CONTENTS
04 EXECUTIVE SUMMARY
05 I. ENERGY SANCTIONS IN THE
HISTORICAL CONTEXT
07 II. OIL PRODUCTION AND EXPORT UNDER
TRUMP SANCTIONS
11 III. CONDENSATE PRODUCTION UNDER
THE SANCTIONS
13 IV. SANCTIONS’ IMPLICATIONS FOR
IRANIAN NATURAL GAS
15 V. STRATEGIES TO WEATHER THE NEW
SANCTIONS
20 VI. LONG-TERM STRATEGIES
26 VII. RETURN TO THE OVERSUPPLIED OIL
MARKET
29 VIII. CONCLUSIONSION
p. 3 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic? EXECUTIVE SUMMARY After years of weathering nuclear-relat- increases its domestic condensate refinery ed sanctions and limitations on its oil ex- capacity. ports, Iran reached an agreement in 2015 with the five permanent members of the This report examines the impact of the UN Security Council plus Germany over its new U.S. sanctions on Iran’s oil and con- nuclear program, the Joint Comprehensive densate production and exports and their Plan of Action ( JCPOA). In May 2018, Pres- potential impact on natural gas produc- ident Donald Trump announced U.S. with- tion and export capacity. It then analyzes drawal from the agreement and – despite Iran’s strategies to weather these sanc- Iran’s compliance with the JCPOA – imple- tions and its long-term oil and gas strate- mented a “Maximum Pressure” tight sanc- gy. It finds that if sanctions are lifted, Iran tions policy aiming, inter alia, at “zero oil will face few technical obstacles to return- export”. Exports of oil and condensate -- a ing oil production to pre-sanctions levels. byproduct of natural gas mostly produced However, it will be difficult to recover lost from Iran’s South Pars field – have fallen market share, because the global oil mar- to under 1 million barrels per day (mb/d), ket is glutted due to U.S. shale growth and down from 2.5 mb/d in the pre-sanctions lower demand growth due to COVID-19. era. Iran has been forced to reduce crude Iran would thus do better to use its oil oil production, but natural gas production domestically, while exporting other ener- remains rather unchanged, propped up gy products, thus maximizing its broader by huge domestic demand and exports to economic benefits and energy strategy. neighbors. If the sanctions continue, they can potentially impact that natural gas production, however, unless Iran either secures customers for its condensate or p. 4 IRAN UNDER SANCTIONS
Inflation Targeting in the Time of Sanctions and Pandemic?
I. ENERGY SANCTIONS
IN THE HISTORICAL
CONTEXT
Iran’s energy sector was the target of mul- A second shock to Iran’s oil industry oc-
tilateral and unilateral sanctions long be- curred in the immediate aftermath of the
fore the Trump administration launched its 1979 Islamic Revolution, when the U.S.
“maximum pressure” strategy. In 1951, the stopped importing Iranian oil, and Tehran
British government imposed an oil embar- halted exporting crude oil and products
go, after Iran attempted to nationalize the to Israel, a once close friend and custom-
Anglo Iranian Oil Company (AIOC, future er.2 Revolutionary chaos saw oil produc-
British Petroleum). The embargo starkly tion drop from 6 mb/d in 1974 to 1.3 mb/d
revealed to Iranians a major vulnerability: in 1981. This was also when a shift began
they were unable to transport their own oil in the oil trade’s flow from Western mar-
to global markets. Today Iran has one of kets toward Asian. In 1996, Washington’s
the largest oil transport companies in the Iran-Libya Sanctions Act (ISA) limited in-
world, with at least 42 Very Large Crude vestment and technology transfer to Iran’s
Carriers (VLCCs). The National Iranian energy industry.3 While it did not com-
Tanker Company (NITC ) had a vital role pletely prevent non-U.S. firms from in-
in transporting Iranian oil to international vesting in the energy industry, due to the
markets during the Iraq-Iran War (1980- EU’s resistance to the extraterritoriality of
1988) and in circumventing the European the sanctions and Washington’s reluctance
Union (EU) and U.S. export sanctions be- to enforce measures that could alienate
tween 2006 and 2016.1 European allies, it limited Iran’s ability to
attract much needed foreign technology
p. 5 IRAN UNDER SANCTIONSI. Energy Sanctions in the Historical Context
and capital.4 As a result, the National Ira- remaining oil customers wean themselves
nian Oil Company (NIOC) maintained oil off Iranian crude, the sanctions targeting
production capacity in the 4 mb/d range the energy sector came back into force.
in the early 2000s (with average export
volume of 2.5 mb/d), but never recovered
its pre-revolutionary capacity. Iran’s energy sector
Another shock came in 2012, as U.S. and
was the target of
EU sanctions aimed at curbing Iran’s nu- multilateral and
clear program slashed oil production to
below 2.7-3 mb/d and exports to around unilateral sanctions
1-1.5 mb/d.5 This caused a severe reces- long before the
sion in Iran, where oil revenue was re-
sponsible for some 80 per cent of total Trump administration
export earnings and about 60 per cent of
government revenue.6 By end 2015, aver-
launched its “maximum
age production of crude oil was about 2.9 pressure” strategy.
mb/d, and production of condensate and
natural gas liquids (NGLs) was 692,000 to
710,000 b/d.7
On 14 July 2015, Iran, the U.S., Russia, Chi-
na, Britain, France and Germany (the P5 +
1) signed the Joint Comprehensive Plan of
Action ( JCPOA). Upon its implementation
in January 2016 and removal of oil export
sanctions, NIOC was able to reboot oil pro-
duction remarkably close to pre-2012 lev-
els. Within months, Iran regained most of
its lost market share, as exports returned
to pre-nuclear sanction levels. Neverthe-
less, despite Iran’s compliance, President
Trump on 8 May 2018 announced U.S.
withdrawal from the JCPOA, re-imposed
the nuclear sanctions and imposed new
sanctions targeting the economy and en-
ergy sector. On 4 November 2018, after a
six-month grace period aimed at helping
p. 6 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic?
II. OIL PRODUCTION
AND EXPORT UNDER
TRUMP SANCTIONS
In November 2018, concerned about a that the U.S. would not issue any new waiv-
sharp rise in oil prices, the Trump adminis- ers for Iranian oil. Japan, South Korea and
tration granted 180-day waivers to import India halted and China significantly re-
Iranian oil at reduced volume to India, duced purchases. Iran’s formal and direct
China, Japan, South Korea, Greece, Italy, oil exports dropped from 2.5-2.7 mb/d in
Turkey and Taiwan. Despite Iran’s JCPOA early 2018 to 380,000 b/d in June 2019,
compliance, all EU countries (including and production was reduced from near-
Greece and Italy) halted their imports of ly 4 mb/d prior to re-imposition of sanc-
Iranian oil due to concerns from refiners tions to 2.3 mb/d.9 Oil exports fluctuated,
and financial institutions about incurring in some months as low as 200,000 b/d, in
U.S. sanctions. Taiwan also imported no others as high as 500,000 b/d until Janu-
Iranian oil during the waiver period. Japan ary 2020.10 From January 2020 to October
and South Korea stopped imports in Sep- 2020, Iran’s average oil export was about
tember 2018, even before the sanctions’ 478,000 b/d and its average oil produc-
implementation, though Japan resumed tion was about 2 mb/d.11
imports from January to April 2019, and
South Korea imported reduced volumes Brian Hook, then the U.S. State Depart-
(mostly condensate) from December 2018 ment’s Special Representative for Iran,
to April 2019.8 noted in an August 2019 interview that: “US
sanctions caused Iranian crude exports
In April 2019, upon expiration of the 180- to fall to 300,000 b/d in June and about
day waiver, President Trump announced 100,000 b/d in July, down from roughly
p. 7 IRAN UNDER SANCTIONSII. Oil Production and Export under Trump Sanctions
2.5 million b/d a year earlier”.12 In January prices; 2) consumers’ lower demand and
2020, Commander Rahim Safavi (ex-chief storage capacity; and 3) increased trans-
commander of the Islamic Revolution- portation costs as tanker rates temporarily
ary Guard Corps (IRGC) and currently an rose. All these reduced the appetite and
adviser to Iran’s Supreme Leader) said, demand for Iran’s discounted oil. During
“Iran’s oil export has fallen under 700,000 this time, most of Iran’s oil sales were di-
b/d”.13 In October 2020, Iran’s Parliament rectly between the government and China,
Research Center announced that oil sales while the private sector had little luck. Due
in the first six months of the Persian Year to lack of storage capacity, China start-
(21 March 2020 to 21 September) were less ed to hold its purchases in floating and
than $ 2.5 billion.14 onshore storage in Malaysia and Singa-
pore. This resulted in a drop in direct im-
The oil demand shock caused by COVID-19 ports of Iranian oil that had cleared Chi-
inflicted additional downward pressure on na’s customs and were reported by its port
Iran’s oil exports due to three main factors: authorities.
1) oversupply in the market and drop in oil
IRAN OIL PRODUCTION
(MILLION B/D)
JANUARY 2018- OCTOBER 2020
4
3.5
3
2.5
2
1.5
1
0.5
0
JAN-18
MAR-18
MAY-18
JUL-18
SEP-18
NOV-18
JAN-19
MAR-19
MAY-19
JUL-19
SEP-19
NOV-19
JAN-20
MAR-20
MAY-20
JUL-20
SEP-20
Source: SVB Energy International 15
p. 8 IRAN UNDER SANCTIONSII. Oil Production and Export under Trump Sanctions
Oversupply in the oil market helped soft-
en the blow from the Trump administra-
tion’s aggressive sanctions policy against
Iran’s oil exports on the broader market
That U.S. sanctions
and prices. By May 2019, after the expi- under the Trump
ration of the waivers, the market already
expected additional global supplies (par- administration have
ticularly from the U.S.). Russia and OPEC been particularly
members such as Saudi Arabia, the Unit-
ed Arab Emirates and Iraq filled the gap successful in curtailing
left behind by Iran’s reduced exports. Also, Iran’s oil exports.
U.S. production from the Eagle Ford field
replaced Iran’s condensate market share
in South Korea.16
IRAN OIL EXPORT
(MILLION B/D)
JANUARY 2018 - OCTOBER 2020
3
2.5
2
1.5
1
0.5
0
JAN-18
MAR-18
MAY-18
JUL-18
SEP-18
NOV-18
JAN-19
MAR-19
MAY-19
JUL-19
SEP-19
NOV-19
JAN-20
MAR-20
MAY-20
JUL-20
SEP-20
Source: SVB Energy International17
p. 9 IRAN UNDER SANCTIONSII. Oil Production and Export under Trump Sanctions
That U.S. sanctions under the Trump
administration have been particularly
successful in curtailing Iran’s oil exports
is due to several factors:
1. Washington was willing to enforce its 3. Major oil producers, such as Saudi Ara-
sanctions much more aggressively, so bia, the UAE and other OPEC members
had much higher expectations for cuts (alongside Russia), increased their sup-
from importers of Iranian oil. During plies and moved quickly to sign con-
the nuclear sanctions under the Obama tracts with importers to substitute Iran’s
administration, the U.S. expected a oil. The market was much better-sup-
“significant reduction” in oil imports plied, and prices were lower since the
from Iran by customers every 180 days. late-2014 crash, unlike the 2012-2015
While the reduction was never clearly Obama-era sanctions, which coincided
articulated, it averaged close to 20 per with oil market disruptions such as the
cent in each cycle. The Trump adminis- Libyan revolution and civil war and the
tration’s expectation, however, was that ISIS insurgency in Iraq.
importing nations, with rare exceptions,
would have to reduce imports to zero. 4. The complementary sanctions re-im-
posed in August 2018, which limit and
2. The U.S. developed more accurate restrict any financial transactions with
means for tracking Iranian exports and Iran or insurance of Iranian oil, have
enhanced its surveillance capabilities. contributed to a more effective imple-
Using this information, the administra- mentation of oil sanctions.
tion even sanctioned a specific Chinese
shipping line (COSCO) for violating its
sanctions.18 Targeting shipping compa-
nies was effective in disrupting Iranian
efforts to store and transfer oil to dif-
ferent destinations.
p. 10 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic?
III. CONDENSATE
PRODUCTION UNDER
THE SANCTIONS
Iran’s condensate and gas liquid out- duction. Reducing gas production could
put has increased over the past decade. have severe implications, as domestic de-
The former is a byproduct of natural gas, mand for natural gas is high, and natural
about 90 per cent from the giant South gas has a considerable, if not strategic,
Pars field. Despite U.S. sanctions, this nat- share in power generation and feedstock
ural gas and condensate production and to petrochemical factories, as well as res-
refinery capacity has increased over the idential and industrial use.
past few years. From March 2017 to March
2018, Iran produced around 259 million As a result of limitations on condensate
barrels of condensate (about 709,580 b/d) export, Iran lost almost all its condensate
and exported about 430,000 b/d.19 By end market share, sold mostly to South Korea
2019, condensate production is estimat- and some to Japan. Tehran, however, had
ed to have increased by 9 million barrels made expansion of condensate process-
a year (about 25,000 b/d) and reached ing capacity a priority even before the
734,246 b/d.20 re-imposition of sanctions. This meant
that Iran started to expand its condensate
Unlike the 2012-2015 nuclear sanctions, refinery capacity and was able to mit-
current sanctions include condensate ex- igate the risk of sanctions by consuming
port alongside crude oil exports. Not be- more condensate domestically. This not
ing able to export its condensate excess only made it self-sufficient in production
capacity means that Iran had to adjust of gasoline and other light distillates, but
and cut back its overall natural gas pro- also created a new gasoline export ca-
p. 11 IRAN UNDER SANCTIONSIII. Condensate Production under the Sanctions
pacity. This helped Iran to maintain its lored-made cocktail to be used as a feed-
natural gas production under the shadow stock for its oil refinery and petrochemical
of U.S. sanctions. factories. This “synthetic oil” could po-
tentially be used as a feedstock for Iran’s
Completion of the Persian Gulf Star Refinery power plants, freeing up some natural gas
helped by adding 360,000 b/d of domes- share in its power generation. Iran has also
tic condensate processing capacity. Each changed the allocation of some of its oil
processing unit has a capacity of 120,000 storage tanks to handle condensate and
b/d, and the refinery’s total capacity is es- unsold gasoline, especially during the first
timated to be 360,000 b/d. To cope with few months of the COVID outbreak, when
the new U.S. sanctions on its condensate domestic gasoline consumption plummet-
export, Iran was able to process beyond ed due to lockdowns. It also used some of its
the nominal capacity of this refinery up to tanker fleet as floating storage for unsold
about 400,000-420,000 b/d.21 Besides the condensate.
Persian Gulf Star Refinery, oil refineries
such as Lavan, Bandar Abbas and Shiraz
have been processing condensate as their As a result of
feedstock. However, this domestic refining
capacity is insufficient to process all the
limitations on
condensate, so Iran has been struggling condensate export,
to maintain its domestic natural gas pro-
duction. Yet, despite the limited conden-
Iran lost almost all its
sate export capacity, Iran resisted reduc- condensate market
ing condensate production, as that would
have required cutting gas output. Instead, share. Tehran, however,
it stored unsold condensate in domestic had made expansion
tanks and bonded storages in China and
also expanded domestic condensate re- of condensate
fining capacity. By November 2019, con-
densate stocks had reached 98.9 million
processing capacity
barrels.22 a priority even before
Iran has also come up with new strategies
the re-imposition of
to maintain its condensate production by sanctions.
increasing domestic use. It has experi-
mented in new ways to blend condensate
with heavy crude oil (“synthetic oil”), a tai-
p. 12 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic? IV. SANCTIONS’ IMPLICATIONS FOR IRANIAN NATURAL GAS At 17 per cent, Iran has one of the largest B, Aghar, Kish, Golshan, Pazan, Charak, proven natural gas reserves in the world, Khartang and Kangan are other major estimated at 33,899 billion cubic meters non-associated fields, holding, together (bcm), more than one third of OPEC’s re- with South Pars, a significant amount of serves and the second largest after Rus- condensate.27 sia.23 Iran is also the world’s third–largest dry natural gas producer, after the U.S. With the 2015 JCPOA, Iran introduced a and Russia.24 Historically, the success rate new type of upstream contract in the hope of natural gas exploration is very high in of creating incentives for international oil Iran, usually above 60 per cent compared companies to invest in its upstream oil to a global average of 30-35 per cent.25 In and gas industry. In both exploration and the past 20 years, most exploration in Iran development, NIOC’s highest priority was resulted in discovery of gas reservoirs. to focus on oil and gas fields shared with About 40 per cent of these are in onshore neighboring countries. But the type of up- regions; the remaining 60 per cent are stream contracts Iran offered were not offshore. South Pars, an offshore gas field originally profitable compared to risks in- in the Persian Gulf shared with Qatar’s ternational companies would have to un- North Dome field, is estimated to have dertake, and negotiating periods were too about 40 per cent of Iran’s proven natural long. gas reserves. About 80 per cent of Iran’s gas reserves are from non-associated gas South Pars, the giant gas field shared with fields.26 North Pars, Sardar Jangal, Forouz Qatar, received particular attention and p. 13 IRAN UNDER SANCTIONS
IV. Sanctions’ Implications for Iranian Natural Gas
priority for diverting capital and invest- contract with the French company Total
ment. Natural gas production increased and China’s CNPC. Total left immediately
even during the Obama era nuclear sanc- after announcement of new U.S. sanctions
tions. Almost all the production rise was in 2018; CNPC withdrew in October 2019.
from South Pars. Domestic contractors,
with the help of Chinese and Russia firms, Iran’s sixth Five Year Economic Plan antic-
furthered the development process of dif- ipated that gas production would reach
ferent phases of South Pars, along with 1,300 mcm/d by March 2021, almost dou-
the construction of gas refineries to pro- ble the 2016 level.29 Because of sanctions,
cess the produced gas and condensate. however, Tehran was not able to achieve
Nevertheless, the attempt to attract West- its goals, though it was successful in in-
ern energy companies’ capital and tech- creasing natural gas production, most-
nology was dashed by U.S. sanctions after ly from South Pars. Gas production from
2018.28 Before then, Iran signed a single gas caps and associated gas, on the other
hand, remained largely unchanged.
If U.S. sanctions continue long term, and
If U.S. sanctions Iran cannot access international capi-
continue long term, tal and technology, it will not be able to
increase natural gas production signifi-
and Iran cannot access cantly. Production levels may even start
international capital to decline. South Pars, responsible for 80
per cent of Iran’s natural gas output, has
and technology, it will already peaked. According to Pars Oil and
not be able to increase Gas Company, South Pars gas production
will face a natural decline from 2023, es-
natural gas production timated to be equal to the annual output
of a producing phase, about 28 bcm a
significantly. South year.30 If Iran is forced to reduce its con-
Pars, responsible for densate production, this could potentially
have a significant impact on natural gas
80 per cent of Iran’s production. Tehran could avert this if it
natural gas output, has either finds customers for its unsold con-
densate or gradually increases domestic
already peaked. condensate refinery capacity.
p. 14 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic? V. STRATEGIES TO WEATHER THE NEW SANCTIONS The Islamic Republic has a long history other side. This is likely taking place al- of dealing with unilateral and multilater- ready in the Caspian Sea. al sanctions. The main current challenge is that the U.S. has identified most previ- ous solutions for circumventing oil export Discounts sanctions. Additionally, international tank- er trackers have already started following To keep customers interested and increase Iranian oil tankers with very high accuracy incentives, Iran reduced export prices and using satellites. But it is important to stress gave further discounts per barrel on deliv- that Iran may find new ways to continue ery. Intermediaries who sell and purchase “unofficial” oil sales. Many smaller trad- Iranian oil, condensate and petroleum ers lack direct or indirect trade/business products have also received a percentage relations with the U.S. and would prof- of sales as commission. Selling oil in the im- it from purchasing Iranian discounted oil porting country’s local currency or selling and “re-selling” it internationally. There in return for goods or services are among are also countries that reject the legitima- other strategies in Iran’s toolkit. NIOC tra- cy of the unilateral sanctions and are will- ditionally has not offered significant crude ing to confront the U.S. A good example oil price discounts but rather discounts on was Iran’s gasoline exports to Venezuela delivery, as well as longer payment terms. in summer 2020. Also, Iran could raise in- Iran agreed with India on a “free deliv- come from fields shared with neighbors ery” of oil upon implementation of sanc- by granting extraction permissions to the tions. Nevertheless, oil price discounts and p. 15 IRAN UNDER SANCTIONS
V. Strategies to Weather the New Sanctions
even steeper condensate discounts did not to Venezuela, it did not turn off AIS, in or-
add much to its oil exports. Almost all its der to signal that it was not intimidated by
oil and condensate customers -- India, the U.S.
Japan and South Korea – officially halted
oil purchases due to the Trump “maximum
pressure” policy. China’s official formal Pre-selling Oil
import was only what Iran owed as part of
the “debt repayment” agreements for Chi- In July 2019, Vice President Eshagh Jahan-
nese investment and services in its energy giri said that “any powerful country that is
industry. Still, China imported additional willing to work with Iran can pre-purchase
Iranian oil and condensate through ship- Iranian oil”.31 He alluded to a potential
to-ship transfers in international waters or market for countries pre-purchasing its
via Malaysia and Singapore. Importantly, oil for future deliveries in return for a line
low oil prices, due to oversupply of both of credit, investment, goods or services.
oil and condensate, have helped the U.S. “Pre-selling oil for future deliveries” was
to reduce Iran’s exports significantly. The designed to protect customers from vio-
COVID-19 induced global demand shock lating U.S. sanctions. It would allow Iran to
and crash of oil prices were additional circumvent sanctions on oil exports, while
factors in reducing the appetite for Iranian helping it either to raise money or receive
oil. All this limited the effect of “discounts”. oil-backed lines of credit. As mentioned,
by July 2019 oil exports had dropped below
300,000 b/d. Iran hoped that pre-selling
Turning off the Tankers’ Geolocators would help it to raise not only the required
revenue for its fiscal budget, but also cash
Another NITC tactic is to turn off its ships’ for importing goods for which it needed
Automatic Identification System (AIS) so to export 500,000 b/d. The budget for the
as to deliver cargoes “off the grid”. This is Persian year March 2019 – March 2020
done mostly to conceal cargoes and des- was set on an expected export of 1.5 mb/d
tinations. Iran has used its tanker fleet to of oil at $55 per barrel. The share of oil
carry oil and condensate directly to final export in the budget of the current Persian
destinations, or to international waters year assumes lower oil export, down to 1
where it transferred cargo to other tank- mb/d at a barrel price of $50.32
ers by a ship-to-ship (STS) method. Nev-
ertheless, most Iranian tankers were de- Nevertheless, oil exports in 2019-2020 so
tected and identified by satellites. Turning far have been much lower than the fiscal
off AIS systems did not help conceal them budget requires. Iran hopes that China, Ja-
from U.S. surveillance. On other occasions, pan, India and the EU will allocate funding
for example when Iran exported gasoline and credits directly or in escrow accounts,
p. 16 IRAN UNDER SANCTIONSV. Strategies to Weather the New Sanctions
allowing the government to purchase its Changing the Allocation of
needs from them. Conceivably this could Storage Tanks
help Iran adjust actual oil exports with its
need to export to sustain the economy. Domestic gasoline consumption dropped
The particular advantage is that it would significantly between April and May due
help Iran sustain future market share by to COVID-19 and national lockdowns. Gas-
receiving oil-backed loans with the pros- oline consumption in May was about 55
pect of future delivery. This could also be million liters/day compared to 75 million
a potential solution for Iran and EU coun- liters/day in November 2019.34 By end May,
tries negotiating over the JCPOA, helping in order to create storage capacity for its
Iran’s economy to function in the face of unused gasoline, Iran had transferred
U.S. sanctions. Aside from the direct ban 770,000 barrels of crude oil from its stor-
on oil and energy export, restrictions on age tanks in the northern oil terminal Neka
financial transactions have also been a to the Tehran Oil Refinery. As officials were
major obstacle for the energy industry. hoping for gasoline demand to pick up
Pre-selling oil would thus not necessarily again in the summer, domestic consump-
bring in requisite cash, but instead extend tion of gasoline started to grow.35 Lower
a line of credit for Iran to purchase goods domestic consumption due to COVID-19,
and services. But crucially, with markets higher gasoline production from the Per-
oversupplied, no one has thus far shown sian Gulf Star Refinery and export limita-
an appetite to pre-purchase. tions due to U.S. sanctions have all swelled
Iran’s gasoline inventories.
Pre-selling Oil in the Stock Market As mentioned, the capacity of the Per-
sian Gulf Star Refinery has increased from
Iranian officials announced that they will 360,000 b/d of condensate to 420,000
introduce contracts to presell oil for de- b/d. This refinery produces 45 million li-
livery in two years.33 The goal is to assist ters/day of gasoline -- less than half of
the government’s budget deficit while the Iran’s gasoline production capacity -- and
economy has been hurt significantly by 17 million liters/day of gasoil. The petro-
U.S. sanctions and COVID-19. It is both dif- leum ministry plans to increase gasoline
ficult and politically infeasible for the Rou- production from South Pars to 54 mil-
hani administration to raise its budget via lion liters/day by October 2020. Since the
taxes. This preselling plan, though neither March 2020 drop in domestic gasoline
finalized nor announced, has become a consumption, Iran has added 120 million
political football. liters of capacity for storing gasoline pro-
duced from the Persian Gulf Star Refinery.
Another 40 million liters of gasoline stor-
p. 17 IRAN UNDER SANCTIONSV. Strategies to Weather the New Sanctions
age capacity was added in Tehran. These has been disconnected from U.S. and
additional capacities were achieved by global trade and financial markets,
changing the allocation of storage tanks it is difficult for Washington to block
from crude oil to gasoline. NIOC is in the exports by threatening loss of U.S. busi-
process of allocating another three crude ness.
oil storage tanks, each with 120 million li-
• Since March, most Iranian tankers car-
ters capacity and in the Naeen crude oil
rying oil to China (and all tankers head-
transportation center, for storing gasoline
ing to Venezuela) have flown the Ira-
produced by the Persian Gulf Star Refin-
nian flag and had their AIS turned on.
ery. Iran has also started diluting crude oil
This strongly suggests that the govern-
storage tanks in Kharg port by gradually
ment is no longer concerned about its
adding condensate.
exports being tracked. Officials stated
clearly that they would respond to any
Iranian Gasoline Export to Venezuela threat against their tanker movements
in international waters.
In May 2020, Iran exported about 1.5 mil-
lion barrels (210,000 mt) of gasoline to
Venezuela in five NITC tankers.36 Vene- Synthetic Oil
zuela’s oil production in April was about
622,000 b/d, down from 1 mb/d in 2018 In order to increase domestic consumption
and early 2019, before U.S. sanctions. Its beyond its condensate refinery capaci-
gasoline production is all used domesti- ty (which is lower than Iran’s condensate
cally, as refining capacity has dropped production capacity), NIOC introduced
from 1.3 mb/d to 626,000 b/d. Reportedly, “synthetic oil”. This blended product is
Iranian tankers were also carrying cata- a cocktail of condensate and Iran’s ul-
lysts to help Venezuelan refineries pro- tra-heavy crude oil produced in the West
duce higher yields of gasoline. The Vene- Karun oil fields, made to be used as a
zuela trade has had a number of positive feedstock for the northern refineries.37 Iran
features for Iran: is also studying the possibility of using this
it as feedstock for both its petrochemi-
• Due to lower domestic gasoline con-
cal factories and power generation. The
sumption (as a result of COVID-19), it
condensate produced in South Pars is re-
was able to export its excess gasoline
ceived by the Bahregan operational unit,
capacity instead of continuing to re-
then sent to the Marun 2 operational unit
duce its oil and refinery production.
and from there to the refineries in Isfahan,
• Finding new markets in an era of Tehran and Tabriz. The petroleum minis-
sanctions is crucial. Since Venezuela try is building new pumping stations and
p. 18 IRAN UNDER SANCTIONSV. Strategies to Weather the New Sanctions
other logistical infrastructure for this pro- and naphtha, the domestic and global de-
cess. Overall, 40,000-45,000 b/d of syn- mand for which have been hit significantly
thetic oil is to go to the three named re- by COVID-19 and lockdowns.
fineries via a pipeline from the southern
oil fields. Some 35,000 b/d is condensate,
the rest ultra-heavy and sour crude oil. Making a New Cocktail & Capillaries Ex-
The Isfahan refinery, with a 360,000 b/d port Strategy
capacity, is to receive about 20,000 b/d
of the synthetic oil. The rest is to be used as Another often employed tactic is to
feedstock for the Tehran and Tabriz refin- change the DNA and specifications of Ira-
eries.38 nian crude oil. Recalling the cliché of oil as
a fungible commodity, Iran has attempt-
The Lavan, Bandar Abbas and Shiraz refin- ed to hide its origin and render its new oil
eries also process a blend of crude oil and “cocktail” unidentifiable. It started to blend
condensate. They consume 428,000 b/d of different crude types at terminals or blend
feedstock, of which about 45,000-52,000 its crude oil with neighboring crudes (such
b/d is condensate, 296,000 b/d is Kharg’s as Iraqi oil) in order to change its spec-
heavy crude oil, and 75,000 b/d is heavy ification and prevent identification. This,
oil from the Gachsaran/Sarvestan, Saa- along with changing certificates of origin
dat Abad, Salman/Abazar and Lavan oil and swapping oil from one tanker to an-
fields. The condensate feedstock for these other on the high seas, makes Iranian oil
refineries is Bandar Abbas (20,000 b/d to tough to track. But the volumes of this ex-
25,000 b/d); Lavan (15,000–20,000 b/d); ported cocktail mix -- what the petroleum
and Shiraz refinery (6,000-8,000 b/d).39 minister has called a “capillaries export
The synthetic oil used as feedstock for strategy” -- are very low.41
these refineries would add about 77,000
b/d total condensate processing capacity
to Persian Gulf Star Refinery’s 420,000 b/d The main current
processing capacity.
challenge for Iran
The Abadan refinery is the next currently in is that the U.S. has
a reconfiguration process so as to receive
and process synthetic oil. It is planned to identified most
receive and process 20,000-30,000 b/d
of synthetic oil.40 However processing syn-
previous solutions
thetic oil has changed the quality of the fi- for circumventing oil
nal products in these refineries. They now
produce more light distillates like gasoline
export sanctions.
p. 19 IRAN UNDER SANCTIONSInflation Targeting in the Time of Sanctions and Pandemic?
VI. LONG-TERM
STRATEGIES
Expanding downstream capacity naphtha and gasoline. Persian Gulf Star
and Siraf are two refineries that will pro-
The IRGC and its subsidiary companies cess condensate. The former currently
have played a crucial role in circumvent- processes 420,000 b/d into gasoline. Siraf,
ing U.S. sanctions and increasing Iran’s announced in 2014, is not yet in operation.
resiliency. Achievement of self-reliance in It has six units with 360,000 b/d capacity.
domestic gasoline production is a testa- Its main final product is to be naphtha. Due
ment to this policy. Iran today produces to export limitations, Iran has also used
about 105 million liters of gasoline per day, about 130,000 b/d of condensate as feed-
40 per cent in refineries built by the IRGC’s stock in its petrochemical plants. Another
Khatam-al Anbiya Construction Head- 80,000 b/d was used in its oil refineries,
quarters.42 Gasoline production capacity apart from the Persian Gulf refinery. Iran
surpasses domestic needs, creating the currently produces about 700,000 b/d of
possibility of some export at a time when condensate from South Pars, but this can
crude oil and condensate exports are un- theoretically increase to 1 mb/d.
der sanctions.
Condensate to Power; Electricity Export
Ending Condensate Exports by 2021 and Water Desalination
The petroleum ministry announced that In May 2020, Oil Minister Bijan Namdar
it plans to expand domestic conden- Zanganeh announced that Iran is pre-
sate refinery capacity and stop exporting paring to make more domestic use of gas
condensate by March 2021.43 All of Iran’s condensate by stopping its direct export.44
production will then be used as refinery The hope is that this will create resistance
and petrochemical feedstock to produce to sanctions and other international pres-
p. 20 IRAN UNDER SANCTIONSVI. Long-term Strategies
sure on the economy, particularly its oil generating electricity for Iranian power
and gas exports. It would also increase the plants from gas condensate is not much
value of non-oil exports and provide value different from generating it from natural
added to the chain of domestic production, gas.
lower energy consumption and greater
economic self-reliance. Special emphasis Officials realize that it is harder for the
is to be on exporting downstream prod- U.S. to implement sanctions on electricity
ucts (such as refined petroleum products) exports, which directly involve the end-us-
and petrochemical products, as well as ers, than on crude oil, condensate or nat-
converting part of Iran’s natural gas into ural gas. Electricity exports also help Iran
electricity for export. strengthen trade ties and diplomacy with
neighbors, many of whom lack adequate
As mentioned, production of condensate power supply sources. Electricity exports
has increased from the South Pars field are not foolproof against sanctions, how-
along with gas production there. 45 The ever. According to the former Iraqi electric-
U.S. sought to curtail natural gas produc- ity minister, Luay al-Khatteeb, Iraq imports
tion by sanctioning condensate export, but 1,200 MW of electricity per year and up to
Iran came up with creative ideas to boost about 1.2 billion cubic feet a day (bcf/d)
domestic demand for its condensate. Ex- of natural gas during peak consumption.
panding condensate refinery capacity 49
Overall Iraq needs more natural gas
and using the product in its petrochemi- and power generation imports to fill the
cal factories and to generate power are gap between supply and demand.50 Thus,
strategies that could help Iran diversify though Washington has given it waivers to
and expand power generation capacity. import Iranian gas and electricity, Iraq is
46
In early February, Zanganeh said that still under continuous U.S. pressure to find
about 130,000 b/d of gas condensate is alternatives. The period of the waivers has
used as feedstock for Iran’s petrochemical been shortening, and Baghdad may re-
plants. A further 80,000 b/d goes to do- duce its imports if it finds sources that are
mestic refineries, apart from the 420,000 competitive in price and volume.
b/d of condensate feedstock used by Per-
sian Gulf Star. 47 The energy ministry is Reportedly, Iraq has held separate talks
considering using gas condensate to re- with Saudi Arabia, Jordan and Turkey
place natural gas in power plants.48 The to “import electricity not only to sup-
condensate-to-power project was an- ply Baghdad but also [the] northern part
nounced in March 2020 as a strategic plan of Iraq as pathway to other countries”.51
to increase resiliency against U.S. oil and In August 2020, General Electric and the
condensate export sanctions. Preliminary Iraqi electricity ministry signed two agree-
ministry studies indicated that the cost of ments worth over $1.2 billion to expand
p. 21 IRAN UNDER SANCTIONSVI. Long-term Strategies
Iraq’s power generation capacity and en- in order for economic reform to move for-
hance its electricity transmission network. ward. “This requires a stable government
Capturing associated gas and using it as with full term not something that changes
feedstock for power generation is a spe- every twelve months. Otherwise it will be
cific part of this agreement, which aims to impossible to fix the electricity sector”, for-
capture 30-40 per cent of the associated mer Iraqi electricity minister Al-Khateeb
gas that is currently flaring and to gen- noted.56 Noteworthy that a stable govern-
erate 3.3. GW of electricity.52 In July 2020, ment is a key requirement for Iraq to be
Iraq completed its side of a 1 GW link to able to attract international investment in
Kuwait, which is to enable it to tap into the its energy sector and Iraq might remain
GCC grid.53 dependent on natural gas and electrici-
ty imports from Iran. However this could
Al-Khatteeb, Iraq’s former minister of change in the long-term and Iran’s market
electricity, believes it will take three to share in Iraq could shrink eventually.
four years’ timeline for Iraq to develop
its power sector and implement the eco-
nomic reform and tariff reform, and also
to develop its gas network and capabil- Converting condensate
ities.54 Nevertheless, to reduce its energy
independence to Iran and to expand its to Power, exporting
domestic natural gas and electricity pro-
duction, Iraq has a serious hurdle to face.
electricity and
According to former minister Al-Khateeb, expanding its water
“achieving this goal requires an uninter-
rupted and clear government program.
desalination industry
My statement on the three to four years are key long-term
of required timeline is a conditional state-
ment because now the government of Iraq strategies that will help
is changed and we are out, so the whole Iran use its condensate
plan could be interrupted and could be
compromised.”55 Iraq has now an interim domestically instead
government and will have an early elec- of searching for a
tion in June 2021, hence not only has the
whole economic reform been interrupt- market share in an
ed but also the economic situation in Iraq
has changed and COVID-19 has changed
oversupplies market.
the whole game across the globe. There-
fore, many things have to be restructured
p. 22 IRAN UNDER SANCTIONSVI. Long-term Strategies
In future, Iran could also use electricity • recently by discharging cargoes in Sin-
to expand its desalination industry, thus gapore, where China buys them, or in
helping with the water crisis. Water desali- floating storages rented and held by
nation capacity beyond domestic needs Beijing.
might also “potentially” build an export
capacity to supply water to its neighbors. On 8 July 2020, Vice President Eshaq Ja-
hangiri announced that “any powerful
country that is willing to work with Iran can
Oil Exports to China pre-purchase Iranian oil”. Iran is active-
ly trying to convince traditional custom-
The latest figures in China’s customs data ers, particularly China and India, to buy
indicate that trade has reached a new low, in advance for future deliveries in return
imports from Iran dropping 61 per cent in for investment, goods or services that can
the first four months of 2020 compared to help it keep market share while providing
the same period in 2019. The main rea- short-term assistance to the economy and
son is the substantial fall in Iran’s direct oil key industrial projects that otherwise lack
exports: for example, only $115 million in funding. Most infrastructure projects, par-
March, down 89 per cent year on the year. ticularly in the energy sector, are presently
The data further indicate that China is idle due to lack of money and access to
buying on average 70,000 barrels of Ira- crucial technologies.
nian crude per day, a tenth of the volume
before U.S. sanctions were re-imposed in Iran and China announced a few months
2018.57 Non-oil exports to China remained ago a 25-year strategic partnership that
stable in March at $384 million, but this is Tehran hopes will reinforce a strategic and
the lowest value of Iran’s declared month- political alliance as a counterweight to U.S.
ly oil exports to China in 20 years.58 pressure. The deal may open the door to
more Chinese investment and technology,
Nevertheless, as noted, Iranian contracts but due to sanctions, Chinese companies
indicate that Chinese oil purchases are, have generally not met their commitments
upon closer inspection, far more tha what to existing Iranian energy projects over the
has been officially declared in customs past few years. A specific cooperative el-
Iran has been selling oil to China through ement is establishment of an Iran-China
alternate ways: bank, with branches in both countries, to
facilitate bilateral transactions. One of the
• from its bonded storages inside China,
more controversial components is China’s
mostly in Dalian;
investment in upgrading and strengthen-
• increasingly in past months via Malay- ing Iran’s military systems, particularly via
sia, from where it is exported as Ma- naval cooperation. Despite their supposed
laysian; and “closeness”, however, China is unlikely to
p. 23 IRAN UNDER SANCTIONSVI. Long-term Strategies
jeopardize its economic and trade relation While Jask port does not directly impact
with Iran’s rivals: the U.S., Israel, the UAE Iranian oil export volumes, its importance
and Saudi Arabia. There is thus a large lies in its ability to function as an alterna-
gap between the expectation and rhetor- tive export route should the Strait of Hor-
ical value Iran attaches to the long-term moz be blockaded. Iran has repeatedly
agreement and the value China places in “threatened” to close the strait in response
it. to attacks on its oil tankers and geopolitical
strife within the region. This encouraged
other Persian Gulf countries dependent
Bypassing the Strait of Hormoz
On 25 June 2020, Petroleum Minister Zan-
ganeh announced that Iran would start While Saudi Arabia and
crude oil exports from the Jask terminal by
end of the Persian year (20 March 2021).
the UAE have put much
The Goreh-Jask Pipeline requires, he said, effort into re-directing
an investment of $850 million. Reported-
ly, $300 million has been invested thus far, exports to bypass the
and the project is 40 percent complete.59 Strait of Hormoz, Iran
While Saudi Arabia and the UAE have put sees its dependency
much effort into re-directing exports to on this chokepoint as
bypass the Strait of Hormoz, Iran sees its
dependency on this chokepoint as a vul- a vulnerability. While
nerability. The export facility is thus a key
strategic project for the Rouhani admin-
Jask port does not
istration that will theoretically allow Iran directly impact Iranian
to export its liquid products via the Sea
of Oman. It includes a 42-inch, 1,000 km
oil export volumes, its
pipeline connecting the oil processing fa- importance lies in its
cility in Goreh (Bushehr Province) to Fars
Province, then Hormozgan and western ability to function as an
Jask and on to the Makran region. The plan alternative export route
is to build the largest oil export terminal
after Kharg in the region, which, beside should the Strait of
crude oil, would export 600,000-700,000
barrels daily of processed gas condensate
Hormoz be blockaded.
in the Persian Gulf Star Refinery via Jask.60
p. 24 IRAN UNDER SANCTIONSVI. Long-term Strategies on the strait for exports to find alternative worth $50 million, have never previously shipping routes. Riyadh has primarily fo- been built in Iran. The port is designed to cused on expanding its East-West crude host twenty storage tanks, each with a ca- pipeline stretching from its Gulf Coast to pacity of 500,000 barrels.61 Yanbu in the Red Sea; Abu Dhabi has in- vested in the Abu-Dhabi Crude Oil Pipe- line that transports crude oil from Hab- shan to Fujairah in the Gulf of Oman. Both these pipelines can circumvent Hormoz, thus providing some flexibility in the event of a blockade. Jask port, therefore, could give Iran the same flexibility and eliminate what would otherwise be a geostrategic disadvantage. According to the petroleum ministry, Iran has constructed all the equipment for the pipeline. The largest obstacle was gain- ing access to special, very wide sheets, the pipeline’s most important component. Foreign suppliers abandoned signed con- tracts due to sanctions, so Iran had to use domestic producers: Mobarakeh Steel and Oxin Steel of Khuzestan. They were able to build the required sheets, a first in Iranian petroleum/energy history. Mobar- akeh made the required slabs, delivering 320,000 tons of sheet metal from 420,000 tons; Khuzestan manufactured the wide sheets, 250,000 tons of sheets out of an anticipated 385,000 tons. Domestic pipe manufacturers have produced 440 of the 1,000 km so far, of which 350 km have been transported to sites and are being welded and laid. According to official sources, 50 huge pumps, with a capacity of 2.5 MW, are required, all to be built by three local companies. These pumps, estimated to be p. 25 IRAN UNDER SANCTIONS
Inflation Targeting in the Time of Sanctions and Pandemic?
VII. RETURN TO THE
OVERSUPPLIED OIL
MARKET
Whenever sanctions are lifted, Iran is like- and Russian production cuts in 2018-2019,
ly to begin working on exporting oil and prices are low.
condensate at a pre-sanctions level of 2.5
mb/d. It has increased production capaci- In September 2019, a drone missile attack
ty in 2020 in anticipation of its return to the closed Saudi Aramco’s oil processing fa-
global oil market. While it certainly has the cilities in Abiqaiq and Khurais, costing the
technical ability to produce and export oil global market about 5.7 mb/d, 5 per cent
at maximum capacity following removal of crude oil worldwide. However, this sig-
of sanctions, exports would be limited by nificant supply interruption did not cause
subdued demand. a market price shock. Global oil demand
and consumption are not keeping up with
The oil market glut and resulting low prices supply growth, a trend COVID-19 has ex-
have created a serious challenge for Iran acerbated.
to find customers simply by offering dis-
counts. Sanctions in an oversupplied mar- Demand shock, coupled with disagree-
ket are a new hurdle not faced under Pres- ments among OPEC+ members in March
ident Obama’s tenure. While other major 2020, led to a significant oversupply in
producers have been competing to secure the market that briefly caused negative
market share, Iran’s hands have been tied. oil prices due to a lack of storage capac-
The U.S. shale boom compounded the ity. OPEC+ failed to agree that month on
market’s glut, rendering Iran’s, Venezuela’s deepening or even extending the produc-
and Libya’s oil redundant. Despite OPEC tion cuts initially agreed in December 2016
p. 26 IRAN UNDER SANCTIONSVII. Return to the Oversupplied Oil Market
between OPEC and leading non-OPEC JCPOA. It is a top priority for the new ad-
countries. Upon that failure and the an- ministration’s first 90 days. This is partic-
nouncement that producers would pursue ularly relevant because US withdrawal
free market competition from 1 April, oil fu- from the JCPOA was accomplished exclu-
tures fell by 40 per cent. On 21 April, for the sively through easily rescindable Executive
first time in history, futures contract for U.S. Orders. There is a strong willingness from
WTI crude for May delivery dropped be- the Biden administration to restart negoti-
low $0 a barrel. The May futures contract ations and encourage Iran to fully comply
for WTI (the benchmark for U.S. crude oil with the nuclear deal, which would start
prices) eventually settled at -$37.63 a bar- unwinding some US sanctions including,
rel.62 Ultimately OPEC+ and non-OPEC+ the ban on Iranian oil exports. The new
countries such as the U.S., Canada and administration might also try to unwind
Norway agreed to cut production. Never- some of Trump’s sanctions before the Ira-
theless, global demand is still low due to nian presidential election in June 2021. This
COVID-19 and is projected to remain that is particularly important, as it would signal
way at least until mid-2021. Full recovery to Iranian voters the US willingness to work
to pre-COVID levels is not likely before end with a pro-diplomacy candidate close to
2021 or early 2022, depending on vaccine the current administration, instead of a
development. relatively more ‘hardline’ candidate.
Iran’s market return would present many
hurdles: for Iran to regain market share; for
the global oil market and major produc-
While common
ers to adjust to the new supplies. OPEC+ expectations are that
would need to prevent another price col-
lapse. It has already cut production to his- Iran’s exports will not
torical lows, and the return of Iran could increase immediately,
create havoc unless that return were in-
cremental. with Biden in the White
House we could expect
With Biden in the White House, oil market
expects Iran’s exports to increase when an immediate rise of
the US (likely) returns to the JCPOA in 2021.
While common expectations are that Iran’s
Iran’s production and
exports will not increase immediately, we export from January
could expect an immediate rise of Iran’s
production and export from January 2021.
2021.
Biden intends to return the US to the
p. 27 IRAN UNDER SANCTIONSVII. Return to the Oversupplied Oil Market Iran, in anticipation of a ‘softer’ approach from the new US administration, will start raising its informal exports from January without fear of US response. On the other side, Iran’s oil customers (particularly Chi- na) will also anticipate less US pressure and enforcement. Under Obama’s nuclear sanctions, China was still importing on av- erage about 500,000 b/d of oil from Iran. The trade war with the US under the Trump administration, however, forced China to increase its compliance with US sanctions. p. 28 IRAN UNDER SANCTIONS
VIII. CONCLUSION
Inflation Targeting in the Time of Sanctions and Pandemic?
U.S. sanctions were intended to drop Iran’s densate domestically and converting it to
oil exports to zero. Under nuclear-relat- either fuel and petrochemical products, or
ed sanctions until 2015, Iran exported an using it directly to generate electricity.
average of 1.5 mb/d, a 1 mb/d loss, but
the Trump sanctions have cut much deep- To tackle economic hardship under sanc-
er, with Iran’s oil and condensate exports tions and generate additional financial
bottoming out at less than 500,000 b/d. resources for the government, the Rou-
Iran has tried several ways to circumvent hani administration seeks to pre-sell oil,
sanctions and increase incentives for trad- with delivery in two years, in return for
ers and traditional customers, but none purchase credits. Iran still faces many
have helped much. From the beginning challenges, however, both to maintain its
of new sanctions in November 2018, Teh- economy and to sustain oil, gas and con-
ran has cut crude oil production to adjust densate production, all of which are suf-
production with export capability, and less fering from the U.S. sanctions and inad-
crude oil has meant NGL production has equate investment. While sanctions have
also dropped. almost completely slashed crude oil ex-
ports (those to China being the exception),
However, it is a different story for con- Iran has maintained more of its market
densate, a byproduct of natural gas. If it share in electricity sales to neighbors.
is to meet domestic demand, Iran cannot
cut its natural gas output in order to re-
duce condensate production. It has stored Iran would do better to
condensate in domestic storages, floating
storages and bonded storages (mostly in
use its oil domestically,
China). Condensate stocks totaled about while exporting other
98.9 million barrels by November 2019. If
U.S. sanctions continue, the rise of con-
energy products, thus
densate production could ultimately con- maximizing broader
strain natural gas production, but Iran
has resisted that so far by mitigating the economic benefits and
sanctions threat with short and long-term energy strategy.
measures. It is focused on processing con-
p. 29 IRAN UNDER SANCTIONSYou can also read
