Two weeks ago, Iran announced it was planning to boost oil output and exports despite ongoing sanctions by the U.S. As we see continually increased output from Iran since the beginning of 2021, can the country overcome U.S. restrictions to regain its title as a major oil-producing state? At the beginning of September, Iran announced it would be increasing its oil output over the coming months, despite ongoing sanctions from the U.S. restricting the country’s export market.
Iranian Oil Minister Javad Owji stated "There is strong will in Iran to increase oil exports despite the unjust and illegal U.S. sanctions." Going on to say, "I promise that good things will happen regarding Iran's oil sales in the coming months."
After three years of reinstated sanctions, after the U.S. withdrew from the Joint Comprehensive Plan of Action (JCPOA) under President Trump in 2018, Iran seems to have had enough of the U.S. using energy as a political tool. Output levels fell lower than 500,000 bpd of oil through much of 2019 and 2020, resulting in a huge blow to the Iranian economy, as well as its trade links, leaving Iran extremely tired of the ongoing situation.
New president, Ebrahim Raisi, was voted into office in June this year, providing international hope that Iran would finally come to a nuclear agreement with the U.S., which would see the easing of energy sanctions and a resurge in oil output and exports. However, to date, this is yet to be seen.
Energy giant Iran sits on the world's fourth-largest oil reserves, and has stated that the country plans to increase output from 2.1 million bpd of oil to 3.8 million bpd should President Biden ease sanctions. This will go hand in hand with the easing of OPEC+ restrictions on oil production this year.
However, in recent weeks, Iran has been criticised for continuing to significantly increase the production of highly-enriched uranium as well as failing to fully cooperate with international monitors. This increased production could provide Iran with WMD capabilities, which U.S. sanctions were supposed to deter.
Meetings between the U.S. and Iran to discuss the potential to revive the JCPOA, meaning the reining in of Iran’s nuclear programme in exchange for U.S. support for the country’s oil and gas industry and the end of sanctions, have been suspended since Iran’s general election in June. During this time, Iran has been increasing its atomic activity and seeking to establish economic support from key energy partners, China and Russia.
Iran has apparently defied sanctions this month by shipping crude oil exports to Lebanon via Syria, according to TankerTrackers, an online service that monitors ships. Iran is also said to be supporting Syria’s energy deficit by shipping three tankers a month to the state. Ships carrying petroleum have been known to disable their automatic identification system (AIS) transponders as a means of moving unseen.
In addition to Lebanon and Syria, Afghanistan, under its new Taliban rule, is expected to depend upon ongoing Iranian oil imports to meet its energy needs. Iran resumed fuel exports to the war-torn state in late August following a pause on exports due to concerns over safety. The Taliban requested that Iran continue its energy export route to Afghanistan, as the Taliban sees U.S. sanctions as less of a threat following the withdrawal of American troops from the country.
Prices in Afghanistan have soared to $900 per tonne of gasoline, forcing the Taliban to admit its reliance on Iran for its fuel needs. The Taliban decided to cut tariffs on fuel imports, including gasoline, diesel, and LPG, from Iran and other neighboring states. Despite sanctions and the ongoing American presence in Afghanistan, Iran apparently exported around 400,000 tonnes of fuel to the state between May 2020 to May 2021. However, actual figures are unknown and could be much higher.
Iran’s oil sales appear to have increased overall in 2021, with international monitoring groups speculating that Iranian exports in the spring totaled twice as much as those of last year. With oil prices rising continually since the beginning of 2021, this could be significant for Iran’s struggling economy. However, some suggest that the illicit export of oil through middlemen could have a detrimental impact on Iran’s oil profits.
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Iran projected its oil exports for this period at around 2.3 million barrels a day and it has officially stated that it achieved only 3 percent of this projection. However, experts speculate that the actual export figure could be around 650,000 bpd, or about 30 percent of its projected target, meaning the true state of Iran’s oil industry and export links is unknown.
Iran is thought to have intermediaries supporting its oil export business in China, shipping back vital goods to Iran in exchange for fuel. This means that Iran is realistically receiving little money for these exports, even if it is already boosting its oil output.
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As the new government presents its plan to increase oil output in 2021 as well as seemingly increasing its atomic activity, essentially having its cake and eating it, the revival of the JCPOA is looking more uncertain. However, if Iran wants to put its energy trade links back out in the open and profit from them, it will have to decrease its dependence on intermediaries carrying out covert operations, meaning it will need U.S. backing to help its oil economy thrive once again.
By Felicity Bradstock for Oilprice.com
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US sanctions don’t stop Iran increasing its crude oil production. However, Iran isn’t going to lift its production if it isn’t able to export most of it.
Even before sanctions, Iran’s crude oil production averaged 3.42 million barrels a day (mbd) during 2014-2018 according to the authoritative 2019 OPEC Annual Statistical Bulletin. So it is realistic for Iran to ramp up crude oil production to the pre-sanction average of 3.42 mbd.
Iran, however, has never managed to fulfil its OPEC-approved production quota of 4.0 mbd.
Iranian crude oil exports averaged 1.617 mbd during 2014-2018 according to OPEC Annual Statistical Bulletin.
Iran is currently reported to be exporting an estimated 1.5 mbd or 71% of its pre-sanction exports of 2.125 mbd of which China accounts for 1.0 mbd with the balance going to India and Turkey.
I don’t think a lifting of US sanctions will see the light of day soon or ever because the positions of the United States and Iran are irreconcilable. The only nuclear deal acceptable to Iran’s hardline government is one on its own terms.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London