Iranian Oil Production Not Impacted Despite Looming Sanctions Threat

JUN 11, 2018 — With sanctions pressures looming over Tehran, production from OPEC’s third-largest producer, Iran, hasn’t yet been impacted, and may not significantly happen so.

The Platt survey found Iranian oil production was steady at 3.83 million bpd, making it the third-largest OPEC producer behind Saudi Arabia, the top supplier, and Iraq.

President Trump’s decision to pull out of the landmark Joint Comprehensive Plan of Action, a multilateral agreement that gave Iran relief from sanctions in exchange for peaceful nuclear commitments, has set a 180-day clock ticking for Iranian oil customers to find other alternatives or face U.S. sanctions pressures.

However, according to the Wall Street Journal, Trump administration’s pressure campaign on Iran is getting scant buy-in from close allies, let alone from biggest purchasers of its oil: India and China — some observers wonder whether one or both might actually buy more Iranian oil, especially if it is discounted, the paper writes.

China purchased Iranian oil at a rate of 671,000 barrels a day in April, while India imported 604,000 barrels a day. Together those two countries buy 60% of Iran’s total exports, more than double the combined purchases of the next two biggest importers, South Korea and Japan, reported WSJ citing Kpler, an oil-industry consulting firm.

During the last round, India refused to recognize the U.S. oil sanctions, but it did eventually cut imports from Iran by about 20%, enough to avoid sanctions from the Obama administration. Delhi has recently reiterated that it doesn’t recognize unilateral U.S. sanctions on Iran. Because India, which is heavily dependent on crude imports, lifted controls on gasoline prices at the pump, rising oil prices are already hitting Indian consumers directly. That is a huge headache for the ruling party of Indian Prime Minister Narendra Modi, which faces a national election early next year.

China is an even tougher challenge. Iran’s biggest oil buyer has promised to work with Tehran to avoid disrupting growing investment and trade activity between the two countries. China has also encouraged the use of its currency, the yuan, for international commerce such as oil trading, which traditionally has been conducted almost entirely in dollars. The country recently introduced new crude-oil futures priced in yuan.

Some analysts see the potential for China to increase its imports of Iranian oil with at least tacit support from Europe. That would help keep the Iran nuclear deal in place without U.S. participation by making Iran whole through oil purchases the U.S. gets other parties to cut.

“We have a joint interest in keeping the Iran deal alive,” said Nicola Casarini of the Rome-based think-tank Institute of International Affairs at a recent regional security conference in Shanghai.

Although the U.S. threat remains potent, the Trump administration so far has no active support or open cooperation from European governments, which tried to dissuade the U.S. from pulling out of the Iran deal — they have announced no plans to cut back on Iranian oil, and privately officials say they hope to avoid doing so. Still, European companies that buy Iranian oil are dependent on U.S. markets and are expected to curtail purchases under U.S. pressure, though far more slowly than last time.

The landscape looks very different now, analysts say. In 2012, EU countries voluntarily imposed a complete boycott on oil from the Islamic Republic. Other countries—Japan, South Korea, India—also cut back, driven by the combination of U.S. pressure and a desire to see Iran restrain its nuclear program. Even China, which decried the U.S. oil sanctions and vowed to defy them, reduced purchases of Iranian oil, in part, analysts say, because it wanted Iran to enter into the nuclear deal.

Unlike the last time around, however, the buyers of Iranian oil are uniformly hostile to U.S. goals this time and likely to delay, resist and outright defy U.S. demands, according to analysts. Iran says it wants to stay in the nuclear deal, and other signatories say they are in it too.

At the two-day 18th SCO Summit in China this week, Iranian President Rouhani was expected to meet with China’s President Xi Jinping, Russian President Putin, Indian PM Modi and host of other leaders and world organizations as Tehran charts its course amid looming sanctions by the US.

Among the documents to be signed include Iran’s role in ‘One Belt, One Road’ initiative, stock exchange and security cooperation.

Analysts say Iran has been pitching to become full member of the China-led regional security and cooperation framework. Though not officially on the agenda, analysts say that one key topic of discussion at the summit this year may focus on whether Iran will be allowed to ascend from its position as an SCO observer to become a full member state – a development it has sought since 2008 but has been unable to achieve while subject to UN sanctions.

Meanwhile, Iran is pursuing a plan to increase its oil output by 460 million barrels within three years, oil minister Bijan Zanganeh said on Saturday, according to SHANA, the news site of the Iranian oil ministry.

The bulk of the work to increase the output at the oilfields will be carried out by Iranian companies, Zanganeh said.

“More than 75 percent of the equipment for developing the output is Iranian,” Zanganeh said, according to SHANA.

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