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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Iran Is Facing A Lot More Than Just Sanctions

Despite being home to massive oil and gas reserves, Iran’s energy sector has been far from steady over the past few decades. Iranian energy has had more than its fair share of ups and downs thanks to extended periods of political turmoil following the major upset of the Iranian Revolution of 1978 and 1979, but even since the premiership of Mohammad Mossadegh in the 1950s patterns of volatility can be seen in the nation’s energy history.

Now, thanks to the United States’ decision to fully reinstate sanctions on Iran since November 4th, Iran is likely to hit another, tougher rough patch when it comes to maintaining and further developing its high-potential, long-suffering energy industry. The political turmoil is not limited to Iran’s relationship with the United States--there is also considerable tension between the current Rouhani administration and its Iranian constituents, with longtime rivals in the Middle East, and different factions between the current Iranian regime itself.

The Rouhani administration has lost a considerable amount of confidence after the U.S. under Trump withdrew from the Nuclear Deal, also known as the Joint Comprehensive Plan of Action (JCPOA), a huge pillar of the administration’s platform. The deal was not in place long enough for Iranians to see real economic growth from its institution, and now, after the deal’s dissolution, Iran is faced with a collapsing currency, bad unemployment rates rapidly growing worse, and significant shortages of imported goods like medicines thanks to the renewed sanctions. Making matters worse, in the face of deteriorating economic hardships and growing discontent with the Rouhani administration, Iran has been plagued by widespread protests.

Under renewed sanctions Iran will not just lose out on trade with the U.S., but with many other international trade partners allied with the U.S. as well. Iraq, which imports a significant amount of gas and electricity from Iran, has so far been granted a waiver to continue doing so without jeopardizing their relationship with the United States, but it’s unclear how long this will be the case, as the U.S. has been looking to switch Iraq’s imports from Iran to Turkey. At the same time, Turkey continues to buy oil and gas from Iran as well, and was also granted a temporary waiver in November to continue doing so.

In the absence of U.S. support and dollars, Tehran has had to strengthen its ties with other economic powerhouses, including Russia and India. Iran already had a (somewhat shaky) relationship with Russia, as they have worked together in backing the Assad regime in Syria. Russia, which has a strong interest in politically undermining the U.S. and its economic strong arming, also has talked of a hefty "goods for oil" swap in order to help Iran bypass U.S. sanctions, but have been withholding when it comes to any specifics. India has also found a way to keep trading in Iranian crude oil by way of banking loopholes involving five escrow accounts in Iranian banks.

Related: Saudi Oil Minister: Crude Stocks Should Drop Very Soon

So far, however, the world’s single most important market for Iranian crude oil (as well as Saudi crude) has managed to avoid taking sides in the tense Middle Eastern market. China has continued to buy crude from Iran, which is an absolutely vital relationship for Iran to maintain if their economy has any hopes of surviving the newest round of U.S. sanctions. While it’s not in Beijing's best interest to sow any more discord with the United States, they are certainly not inclined to bend over backwards for the U.S. either, as the trade war (which includes tariffs on U.S. oil and gas) between the world’s two biggest economies continues to escalate.

If the U.S. decides to be less lenient with its waivers or Iran sours any of the important trade relations it has managed to build or maintain in the wake of reinstated U.S. sanctions, it will spell out major trouble for the Iranian energy sector and for its already wavering economy as a whole.

By Haley Zaremba for Oilprice.com

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  • Peter Robert Breedveld on December 21 2018 said:
    Iran and China provide a great contrast. In 1979 Iran had it's revolution with the goal of creating an Islamic state. Around the same time China had a revolution in economics with the goal of getting rich they called it Socialism with Chinese characteristics.

    Basically China adopted a more market based economy, dropped its socialist dogma and allowed economic freedom. This allowed the country to get rich and powerful.

    Iran's revolution made its economy and society more restrictive. Iran has been in decline since its revolution.
  • sadegh on December 22 2018 said:
    It's strange that you didn't mention Europe reacts to this situation at all. Europe knows well that if something goes wrong in Iran It will be damaged much more and even sooner than everyone else. Iran is home to more than 2 million refugees from the countries like Afghanistan, Pakistan, Iraq,... and If it can't manage to support them there will be a second major wave of refugee towards Europe alongside millions of Iranians themselves and this would be a great mess for them as they already are in a big challenge because of Syrians. Plus, Iran is a great client of European Companies and lots of highly profitable trades can happen with Iran that triggers them to find a solution. Considering this, I think even if Trump succeeds to make China, Russia, Turkey and India to accompany him obeying one-sided sanctions, which is not easy at all, Europe will step forward with approaches like SUV, oil-goods bartering trades, etc. to overcome any hard consequences for Iran.
  • Vahid on December 22 2018 said:
    There are many facts that you did not point out for reasons to all yours readers! which, i would like to add into this comment regarding I.R.Iran as follows:
    1. November 4, 1979, I.R.Iran took 52 American diplomats hostage for close to 18 months in Tehran
    2. April 18, 1983, United States embassy bombing was a suicide bombing in Beirut, Lebanon, that killed 63 people. I.R.Iran backed up the Hezbollah to execute this action
    3. November 5, 2018, U.S. imposed new sanctions, targeting the Iranian regime, more than 700 individuals, entities, aircraft and parts, vessels, Transactions by foreign finance organisations with 50 Iranian banks, including the Central Bank of Iran
    4. I.R.Iran, actively financially supports all terrorists group in the Middle East and North Africa
    6. The Obama administration is acknowledging its transfer of $1.7 billion to Iran in 2016. So if there is shortage or no shift in economy growth in I.R.Iran is due to mismanagement of leaders at all times
    7. "Unemployment rate was over 12% and it's keep growing due to other reasons that i mentioned above
    8. US government, never imposed any sanctions against I.R.Iran of importing vital goods like medicines or food! (2008, According to USDA, the I.R.Iran's Government Trading Corporation purchased $535 million of US wheat)

    Thank you,

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