The oil industry of Iran has now been brought into partial ruin and decay. This dilapidated state of Iran’s oil industry is a clear reflection of corruption within the governing system and extremely poor management by incompetent and unaware individuals within the oil industry.
The National Iranian Oil Company (NIOC) had grown from a passive office in 1951 after the nationalization of the oil industry in Iran to an active, mature and well-respected international oil company with production above 6 million bpd crude oil in 1979 before the so-called Islamic revolution and the establishment of a dictatorial regime in Iran. For a period of 25 years, from 1954 when the Iranian Oil Consortium Agreement was signed till before the revolution, the NIOC was a very effective organization with well-functioning management. It operated efficiently not only in production, but also in refining, maintaining and laying pipelines, petrochemicals, natural gas, domestic operations, and international marketing. Eleven well-maintained refineries were in operation in Iran with nearly 2 million bpd total capacity, and efficient pipelines were in place between oil wells, refineries and the most prepared and modern terminals east of the Suez canal.
From nearly the 1960s, NIOC expanded internationally, initially securing markets for its crude share from the consortium. The company invested heavily in refinery construction under agreements to provide crude oil to the new facilities in South Korea, India, Senegal, and the Republic of South Africa. The NIOC also signed a preliminary agreement to enter U.S. markets to refine crude and distribute products. The NIOC noticeably entered the eastern European countries’ oil markets and was under a long-term agreement to export large amounts of natural gas annually to the Soviet Union. All of this was accomplished while Iran played a leading role in decision-making by OPEC, which it helped found in September 1960.
However, now the energy sector of Iran, including the petroleum industry, is controlled by the Islamic Revolutionary Guard Corps, which the U.S. has blacklisted. The minister of oil is a Guard veteran with evidently no knowledge of the petroleum industry. The Iranian oil industry has been significantly deprived of modern technological improvements and outside investment. Iranian oil fields are presently mature and in a stage of decline, explicitly in need of complete rejuvenation and work over to reach a decent and prosperous level necessary for attracting customers and entering the world market. No doubt it will take many years to gain the trust and respect of the market.
Rostam Ghasemi, the Islamic regime’s oil minister, in November 2012 said that within the next three years he is determined to increase the country’s oil production to 5.2 million bpd. Although pure slogan, this increase would require at least a $100 billing investment per year in the oil industry, and no international company or consortium at the present time has any desire to invest in the Iranian oil industry unless the Islamic regime comes clean on its atomic program.
Although the Islamic regime insists that its nuclear program is absolutely peaceful, western powers and the free world rightfully continue to increase economic sanctions against the oil industry and the banking sectors of Iran. Also four sets of United Nations sanctions are continuously imposing an effective economic toll that has contributed to an unprecedented unemployment rate and unbearably high consumer prices in Iran. Incredibly, the U.N. nuclear agent, the International Atomic Energy Agency (IAEA), in September 2012 revealed in its quarterly report that the Islamic regime doubled its capacity to produce highly-enriched uranium in the underground once-secret Fordow facility and does not permit inspectors to visit a military site (Parchin) to verify that it was not used for atomic weapons tests. In February, the IAEA also announced that the Islamic regime has added 180 advanced IR-2m centrifuges to the nuclear site in Natanz in its heavy water installation.
Since 1995 the U.S. has banned American companies from investing in the Iranian energy industry and from trading with the Islamic regime, although the EU has been much slower to target Iranian petroleum. However, in July of 2012 the EU imposed an effective embargo on Iranian oil and gas, which include imports of liquid petroleum gas (LPG) from Iran, all as part of a set of new measures to increase pressure on the Islamic regime over its nuclear program. Furthermore, European companies are also banned from providing storage or transport vessels for Iranian oil and petrochemical products, effectively preventing European insurers from covering oil tankers transporting Iranian oil.
The next round of EU sanctions against the Islamic regime was approved on October 2012 restricting industry and the central bank of the Islamic regime to weaken Tehran economically and derail its nuclear program. Among the more than 30 firms and institutions listed in the EU’s official journal as targets for asset freezes in Europe were the NIOC and the National Iranian Tanker Company, as well as other NIOC subsidiaries including the National Iranian Gas company and the National Iranian Oil Refining and Distribution, all of which are vital elements of the Iranian oil industry.
EU sanctions from October also include a ban on purchase of Iranian natural gas. However, about 90 percent of current Iranian natural gas exports are delivered to Turkey, 6 percent to Armenia, and a recently unspecified amount that had been previously sold to the Republic of Azerbaijan is now under a long-term agreement being delivered to southern Iraq practically free of charge as the Islamic regime pledged to assist the Shiite government in Iraq. Currently a small volume of Iranian gas still reaches Bulgaria and Greece via Turkey by way of blending with the gas from Azerbaijan. Apparently stopping Turkey from purchasing Iranian gas and delivering to southern Europe might alienate Turkey, which has a pivotal role in the European countries’ aspirations to diversify gas supplies away from Russia. In return, Turkey, which for a long time has relied heavily on Iranian gas, exported in barter fashion $8.5 billion worth of gold and goods to Iran in 2012. However, under western pressure, Turkey is considering importing liquefied natural gas (LNG) from Qatar.
Apparently, the most crippling decision has been a ban by the international financial clearinghouse, the Society for Worldwide Interbank Financial Transfers (SWIFT), on Iranian funds transfers. Iran’s crude exports thus fell about 50 percent in 2012 in the face of an EU embargo on Iranian crude that started last July and U.S. restrictions on its financial institutions doing business with Iran’s central bank, Iran’s primary mechanism for processing oil sales. Oil exportation from Iran gradually dropped in September of 2012 to about 850,000 bpd from 1.5 million bpd in December of 2011, and that resulted in lost revenue of about $5 billion a month for the country. Still aiming for tougher sanctions, the U.S. Congress in mid-December of 2012 has produced legislation imposing the severest penalties on Iran, targeting its energy sector and financial institutions. The U.S. Senate, with an impressively high margin, resoundingly approved this third round of sanctions that have targeted the loopholes. The new sanctions, which were an amendment to the National Defense Authorization Act, initially resulted in warnings by the President of the U.S. that the new measures were unnecessary and counter-productive. Nevertheless the new sanctions, including a $633 billion defense bill package, were signed by President Obama in to law in early January 2013 prohibiting any company, country, or individual from trading with the Islamic regime in the sectors of energy, and shipping industries and ports which may possibly assist the Islamic regime’s nuclear program. Financial institutions in countries purchasing oil and petroleum products from the Islamic regime could be cut off from the U.S. banking system. Consequently, in early March, insurance companies of India, the second largest buyer of Iranian crude, announced that Indian refineries which process Iranian oil must no longer be covered due to Western sanctions. This would add about $1 billion a month more to the total loss of income for Iran.
Starting February 6, U.S. law established powerful sanctions that prevent Iran from receiving earnings to which it is entitled from its shrinking oil export trade. Under the new set of sanctions the Islamic regime has no choice but to continue with barter trades and local currencies, with limited access to the foreign exchange it desperately needs to continue its nuclear program and its customary support of international terrorism in the four corners of the world. In early November 2012, the undersecretary for terrorism and financial intelligence at the U.S. Treasure Department David Cohen explained to the Foundation for Defense of Democracies (FDD): “Iran’s oil revenues will largely be shackled within a given country and only useable to purchase goods from that country, which will lock up a substantial amount of Tehran’s funds.” Furthermore, in consideration of the dismal human rights condition of Iran, the Senate Banking Committee recently announced that unless the Islamic regime ceases suppression of the Iranian people and also ends support of international terrorist activities, it will face deeper international isolation and greater economic pressure. In the last days of December 2012 a letter stating “there should be no diminution of pressure on the Iranians until the totality of their nuclear problem has been addressed” was written and signed by 73 U.S. senators and then delivered to the White House.
Declining oil exports, which are the lifeblood of the Islamic regime’s economy, has caused the Iranian rial to shed more than 60 percent of its value against the U.S. dollar, leading to spiraling inflation and mounting unemployment. Uncontrolled inflation has raised food and commodity prices to such a degree that the majority of Iranian citizens presently cannot afford even basic necessities. Super inflation and unemployment in Iran are now presenting a serious danger to the regime, and this is more or less the aim of the free world policy objective in Iran.
Furthermore, Iranian refineries produced only about 58 million liters of gasoline a day in 2012, while consumption in the same year was over 65 million liters daily. Consequently, the Islamic regime relies more heavily on poor quality gasoline it produces from converted petrochemical plants, which is highly polluting and harmful to its citizens, but the Islamic regime blames this dilemma on Western efforts to prevent it from buying gasoline from abroad. All these are harbingers of impending defeat for a tyrannical regime in an ongoing economic war with the free and democratic world. Shamelessly, while Iranian oil revenues have been reducing and imposing a heavy burden on the people of Iran, there are simultaneous increases in activity in the regime’s nuclear site (Fordow). The number of centrifuges increased drastically from 1064 to 2140 during the first six months of 2012, therefore adding to its stockpile of highly enriched uranium according to IAEA reports.
In recent years Iranian crude oil usually sells at a discount of several dollars per barrel relative to the North Sea benchmark Brent. Although the NIOC continuously denies cutting oil prices, Asian refineries from India, China, and South Korea have negotiated high discount rates for Iranian oil compared with Persian Gulf grades. Therefore, the prices for Iranian crude have decreased relative to other regional crude, to the lowest in more than six years. These decreasing prices indicate the NIOC is experiencing difficulties in selling its crude oil.
Recently, Islamic regime authorities have approached the officials in Egypt to sell with discount two million barrels of oil that are part of a stock of unsold crude oil in the port of Sidi Kerir. Egypt, however, has refused to accept the offer. Of course, under the newly passed U.S. legislation, Egypt could lose Washington’s aid and be banned from using the U.S. financial system if they buy oil from Iran. Also, apparently to help prevent the uprising of the Jordanian citizens due to exorbitant prices of energy products in the Kingdom recently, the Islamic regime made another generous offer to deliver oil and petroleum products to Jordan, but the proposal was immediately turned down.
The National Iranian Tanker Company has deceptively changed the names and reflagged most of its tankers even before the oil embargo began. Twenty-two ships owned by the NITC were registered in the small South Pacific island known as Tuvalu, and 13 tankers were registered in east African nation Tanzania. These were the ideal locations to blend or rebrand the crude as non-Iranian oil to be easily sold. But under Washington’s pressure Tuvalu and Tanzania in August 2012 agreed to deregister the Iranian tankers. Fifty-eight Iranian owned vessels were blacklisted by the U.S. last July for assisting in Iran’s oil trade. Further, rental vessels, if providing storage services for Iranian oil, would be considered as breaching the European sanction laws. However, the NIOC is still struggling to find ship-owners willing to offer vessels for storage and ship-to-ship transfer. On the other hand, the NIOC has been reluctant to cut its oil production, fearing reduction will damage its production wells. But it does not have sufficient space to store the crude it cannot sell. The unsold oil is being stored in over two-thirds of the Iranian tankers which have been more or less sailing in circles around the Persian Gulf and the Red Sea as the Islamic regime is willing to sell its oil at bargain-basement prices. International oil experts believe that Iran is now warehousing 50 million barrels on floating tankers at sea, and as much as 14 million barrels of crude on shore.
In October 2012 at the World Energy Forum conference in Dubai, the oil minister of Islamic regime Rostam Qasemi announced that “the Islamic regime will halt all its oil exports to its regular customers if the West’s sanctions on Iran are strengthened, which will instead cause the citizens of Europe and the U.S. to suffer.” To ignore the negative impact of the West’s unilateral sanctions on Iran’s economy and energy sector, Qasemi added “The world is big and we have our own buyers.” Meanwhile, using their favorite terroristic tactic to blackmail the free world, Tehran authorities threatened to close the Strait of Hormuz, reminding consumers and the oil market that an average of 17 million bpd of crude and a large volume of petroleum products traveled through the Strait of Hormuz in 2012.
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A number of critics, various oil experts and most of all Islamic regime officials warned that an embargo on Iranian oil would result in a catastrophic increase in oil prices internationally. However, the facts proved otherwise. All these were said to intimidate the world petroleum markets. To the contrary, prices did not rise but rather fell in international markets at the end of 2012. Iranian exports reduced from over 1,500,000 bpd to about 850,000 bpd over the course of 2012, as buyers successfully found new sources and new sellers. The fact is that the international oil markets can survive a full embargo of Iranian oil. The Islamic regime has finally realized this as both its oil minister and president, in addresses to the so- called Islamic Parliament on two separate occasions in January, have broken away from continuous denials in the past and have admitted for the first time that the country’s oil exports, “within the past nine months have dropped 40 percent and that caused a 45 percent drop in oil income all because of Western sanctions.” However, the increase of crude oil production and exports in other parts of the Persian Gulf and North Africa are making up for the loss of Iranian oil. Undoubtedly, this will have negative ramifications for the availability of long-term customers for Iranian oil if sanctions are ever lifted.
Now, when millions of barrels of Iranian crude oil are secretly shipped to the little-known ports in Southeast Asia and loaded at night on to empty vessels to await potential buyers with great discounts, we have before us an oil industry under siege. When the sale of crude oil, which provides up to 90 percent of foreign currency and is the biggest source of revenue in a country of 75 million citizens, is continuously diminishing and perhaps drying up, this is undoubtedly a sign of the demise of a once glorious oil industry. No one can recall any part of the world where a country so rich in manpower and natural resources, about 10 percent of total world oil and about 18 percent of total world gas reserves, has experienced such profound and rapid deterioration of its living standards as Iran has since the so-called Islamic revolution of 1979. Iran today is a country whose unbalanced economy suffers heavily from resource crunch and whose poor and desperate citizens have lacked access to even minimum social security for the past 34 years. Instead, the Islamic regime has been promoting international and domestic genocide. Oil revenues are making those programs possible.
The Islamic regime’s propaganda, no matter how persistent, cannot belie its illicit nuclear program, its state sponsorship of terrorism, and its brutal repression of its own people. In early March, the Human Rights Council released a report in the situation of human rights in Iran. The special Rapporteur concluded that there were 297 official executions and over 300 ‘secret’ executions in 2012 alone, all in the absence of fair trial standards. Hopefully, the freedom-loving and democratic world will not permit a medieval regime, however rich in oil and gas, whose mission is to destroy civilized society, to be a regional player with atomic warheads in hand.
By. Dr. Mansour Kashfi
Mansour Kashfi, PhD, is president of Kashex International Petroleum Consulting and is a college professor in Dallas, Texas. He is also author of more than 100 articles and books about petroleum geology worldwide. firstname.lastname@example.org