Oil prices fell below the…
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A report published by the Organisation of the Petroleum Exporting Countries (OPEC) in May proves that the US sanctions are finally taking effect, as oil production, the backbone of the Iranian economy, fell by 12 percent in the first three months of this year and is expected to continue falling.
The decline in oil production is happening so fast that Iran could lose its position as the second largest crude oil producer in OPEC by June 2013 to Iraq; although Iran’s Oil Ministry still maintain that they have registered no significant change to output.
Unwilling to slash production, which can permanently damage oil wells, the Iranian oil companies are storing all excess produce in its fleet of supertankers anchored near to the main oil terminals in the Persian Gulf.
Irans fleet consists of 39 supertankers with a storage capacity of 80 million barrels, roughly 25 days of production at current levels. They have already filled 40 percent of the capacity, and whilst China is due to deliver 12 brand new supertankers this month, if the capacity is filled completely they will be forced to shut down wells which could potentially prove to be disastrous.
Reza Zandi, an oil specialist writing for the Shargh newspaper, said that “closing off valves sounds easy, but the consequences can be extremely damaging. Technically it wrecks the oil wells, and we will never be able to bring their output back to previous levels.”
Iran’s production levels have been in decline for years, hampered by old sanctions which have starved the industry of spare parts and foreign investment, and now the new US sanctions mean that it is struggling to find buyers for its oil.
Mohammad Reza Sabzalipour, the president of the Tehran World Trade Center, said that the “economy is like a car with four flat tires. We can’t bypass these sanctions forever. We need understanding and détente with the West.”
Although Zandi quite correctly pointed out that, “the less oil there is available, the higher the prices will be, it’s that simple. All of us are consciously destroying our future.”
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com