Iran’s oil industry seems to be going from strength to strength despite ongoing U.S. sanctions on Iranian energy, as governments worldwide look to secure their oil supplies in the face of global shortages and rising prices. Several heads of state have announced their intentions to increase the import of Iranian oil as Iran continues to boost production, largely ignoring U.S. sanctions, to ensure their energy supply. Considering Iran’s announcement that it saw a 580 percent increase in its oil and condensates income from March to July compared with the same period last year, it appears that U.S. sanctions are doing little to dissuade countries around the globe from purchasing Iranian energy. The country’s Minister of the Economy, Ehsan Khandouzi, stated: “Due to the increase in oil exports and our new budget's currency conversion rate, we saw a 580% increase in the treasury's income from the export of oil and condensate in the first four months of this year.”
Iran has been pumping oil funds back into its treasury with plans to rebuild its economy as its oil wealth increases. Nevertheless, the country is facing over 50 percent inflation, driving product and utility costs up. The Brent benchmark has increased from $76 per barrel this time last year to $104 per barrel now, meaning that Iran can be highly competitive with its oil prices to attract export partners while restoring its oil wealth.
In the face of energy insecurity, it seems that everyone wants some of Iran’s oil, with many state leaders deciding to ignore U.S. sanctions to import vital energy resources to maintain their reserves. Turkey’s president Recep Tayyip Erdogan announced this week that Turkey intends to boost its imports of both oil and gas from Iran following a meeting with President Ebrahim Raeisi in Tehran. Raeisi said that he hoped the two countries’ trade ties would triple in the coming years to reach $30 billion, following the meeting.
Meanwhile, the Finance Ministry of the Taliban stated last week that it had signed an agreement to decrease fuel prices, following a meeting in Iran to discuss oil purchases, and the price and transit of petroleum between the two states, as diesel increased by nearly 23 percent in June in Afghanistan. The Taliban intends to buy 350,000 tonnes of Iranian oil, starting this month.
The most concerning of all of Iran’s oil trade allies is Russia. Vladamir Putin visited Tehran earlier this month for the second time since the Russian invasion of Ukraine following the signing of a $40 billion memorandum of understanding (MoU) between Russia’s state-owned Gazprom and the National Iranian Oil Company (NIOC). This is just the latest news of cooperation between the two countries.
Gazprom will be supporting the NIOC’s $10 billion Kish and North Pars gas fields, which are expected to produce 10 million cubic meters of gas per day. The MoU also outlines plans to increase pressure in the South Pars gas field for $15 billion and for Gazprom to support several Iranian LNG projects including export pipeline construction. This move is expected to give Russia greater control over Iran’s gas exports.
And, of course, Iran is continuing to deepen ties with its fellow victim of U.S. sanctions Venezuela. Iran and Venezuela have been working hand-in-hand over the last year to circumvent sanctions on their oil and gas industries as they try to rebuild their economies. China has continued to support the partnership, buying energy from both powers by using alternative routes and ghost ships to transport sanctioned oil. Venezuela agreed to trade its oil for Iranian condensate, which was in short supply and is needed to dilute its heavy crude. The first delivery arrived in January, with 2 million barrels of condensate being shipped to Venezuela's Jose terminal.
And this month, Iran decided it would be increasing crude shipments to Venezuela to support the productivity of its aging refineries and allow for domestic oil exports. This follows a May agreement for the two powers to renovate Venezuela’s El Palito refinery. State-owned Petróleos de Venezuela (PDVSA) expects to receive 4 million barrels of Iranian crude this month, up from 1.07 million barrels in June. This aim is to help PDVSA rebuild the stock of its exportable grade crude, Merey, which is favored by Asian refiners.
With countries around the globe facing rising oil prices and the fear of energy shortages, due in part to new sanctions on Russia, many governments are putting their energy security above respect for U.S. sanctions. If Iran can maintain its competitive oil prices, it seems likely that it will continue to quickly rebuild its oil industry over the next year and beyond.
By Felicity Bradstock for Oilprice.com
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