Asian economies this year have relied less on Iranian oil to meet their energy demands. India's economy slowed down considerably in part because of tighter credit conditions and poor consumer sentiment. For China, its first-quarter gross domestic product was lower than expected. That means less oil demand from some of Iran's largest existing consumers. In June, Iranian voters head to their polling stations to pick a president to replace Mahmoud Ahmadinejad, ineligible to compete because of term limits. The Iranian economy has been a central issue to the campaign so far as inflation and unemployment rates hover in the double digits. With the sanctions noose tightening, however, it's unlikely that any in the pool of candidates for 2013 have a chance to turn things around.
Indian imports of Iranian crude oil declined in April more than 30 percent from their March levels. With sanctions pressure mounting on Iran, the Indian government has instead turned to Latin American oil giant Venezuela, as well as Iraq and Oman, for more crude. India's economic growth has slowed down, but a series of government initiatives announced in September suggest its economy could rebound by next year. First-quarter GDP in China, meanwhile, was worse than expected, leading to speculation of a lower global oil demand for 2013. Chinese crude oil imports from Iran declined more than 4 percent in April from the previous year. Nevertheless, China is expected to witness "substantially better" economic growth in 2013.
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The 12-member Guardian Council announced last week that eight of the more than 650 registered candidates are qualified to have their names on the June 14 ballot. During Ahmadinejad's tenure, the value of the Iranian currency, the rial, dropped by 80 percent in the last two years and oil exports have declined 50 percent in the last year. Last week, the U.S. House Foreign Affairs Committee passed a resolution that would tighten economic sanctions on Iran even further by focusing on oil exports. China and India are among the Iranian oil consumers looking for waivers from U.S. sanctions by cutting their import levels. If passed, the House measure would require a further reduction of 1 million barrels per day to qualify for an exemption. No oil revenue for Iran means no money to cause problems, said Committee Chairman Rep. Ed Royce, R-Calif.
The International Monetary Fund said the Iranian economy will contract this year. At least half of the candidates approved by the Guardian Council spent last week talking about economic reform. Former Iranian Foreign Minister Ali Akbar Velayati, a top advisor to Supreme Leader Ali Khamenei, said high inflation was unacceptable. Tehran Mayor Mohammad-Baqer Qalibaf, for his part, said he'd move the Iranian economy away from oil altogether.
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Oil exports account for about 80 percent of Iran's export earnings and about half of its government revenue. Iran in 2012 remained a top crude oil exporter, though those figures have declined because of U.S. and European sanctions. If the House measure from last week passes, exports should decline even further in the coming years.
Most of the candidates vying for the presidency are considered conservative allies of Khamenei. Despite their campaign rhetoric, it's unlikely that any of them would extend the olive branch to the international community needed to ease economic pressure. The U.S. State Department said last week that the latest report from the International Atomic Energy Agency "marks an unfortunate milestone with regard to Iran’s illicit nuclear activities." Iran's elections won't generate any major sea change. Given the lack of traction on the nuclear front, it's unlikely that political development, or very much else, will help Iran's cause in the post-Ahmadinejad era.
By. Daniel J. Graeber of Oilprice.com