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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Iran’s New Gray Area Oil Trade Strategy

Iran is resurrecting its stock exchange, last used four years ago, to sell one million barrels of crude, the National Iranian Oil Company said in a statement quoted by S&P Global Platts. Now, the analysts quoted by the news outlet are of the opinion this won’t do much about the country’s oil exports after November 4, when the U.S. sanctions will come into effect, but it does demonstrate what some warier observers have noted repeatedly: Iran is not as helpless as it may seem.

The idea for the exchange is to have private local entities buy the crude and then resell it to foreign traders. Analysts accurately point out that this would still put the foreign entities on the hook for penalties from Washington as doing business with Iranian entities would constitute a breach of the sanctions. However, not all agree that this fact would make the move ineffective.

The exchange trade could be used by illegal traders, not just legal local companies, the Middle East managing director of consultancy FGE Energy told S&P Global Platts. "Since the Iranian government or NIOC cannot get directly involved in negotiations with smugglers, this will allow a private middle-man ... to go and find buyers and arrange for logistics that could possibly be invisible to the monitoring systems," Iman Nasseri said.

In its statement, NIOC went on to say the barrels to be sold on the exchange would be priced based on what the company has been receiving for international oil deliveries to date, adding that 80 percent of the payment would need to be in a foreign currency and the rest in rials.

Related: Goldman: The Oil Market Can Handle Iran Outages

One million barrels equals almost all of Iran’s oil exports for one day as per data gathered by most major shipping data aggregators. These, as of the first week of October, according to Reuters, stood at 1.1 million bpd. However, there’s data and there’s data. TankerTrackers.com reported back in September that Iranian tankers were turning their transponders off after they left Iranian ports, which hid them from location data-gathering systems, turning them back on when they reached their destination. In other words, Iran’s actual exports may be a lot higher than 1.1 million bpd.

Leaving the export conundrum aside, how substantial is this amount that NIOC is putting up for sale on the exchange? This is the most important question. Well, TankerTrackers founder Samir Madani says it’s not very great. The move, he told Oilprice, was most likely a defiant gesture aimed at boosting the morale of the population. It is, after all, a population facing sanctions for the second time in less than a decade—a morale boost is a must in these circumstances.

Iran won’t get rich by selling a total of 1 million barrels on the exchange; it would basically be too much hassle for nothing. But it could boost its oil sales revenues if it sells that much on a daily basis. Even half of this amount sold on the exchange daily could boost earnings. So, how realistic is it to see Iran selling 500,000 bpd to private companies that then sell the oil on to smugglers who can basically reach every oil-buying destination in the world one way or another? The jury is still out on that. The only reference from the past we have suggests that it’s not very realistic.

According to Shana data cited by S&P Global Platts, the exchange was last used in April 2014 when NIOC sold 2,920 barrels of crude. Another batch after that failed to attract any buyers. Of course, those sanctions were international, and the pressure was much stronger. Now two of the biggest oil buyers in the world want to continue buying Iranian crude. Tehran will certainly do all it can to make this buying easier.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on October 14 2018 said:
    For sure, Iran is not going to take US sanctions lying down. One also has to remember that Iran pioneered the oil spot market when it sold millions of barrels in 1979 at spot market prices pushing oil prices to more than $42 a barrel from about $15 and precipitating the world’s second oil shock during the Iranian revolution.

    So for Iran to sell a million barrels from its oil stocks will not only be an act of defiance against US sanctions but it will also enable Tehran to boost its oil sales.

    I have been arguing for a while that based on market realities, US sanctions against Iran will fail miserably and Iran will not lose a single barrel from its oil exports.

    One last point of correction is that Iran’s oil exports in 2017 averaged 2.125 million barrels a day (mbd) according to the 2018 OPEC Statistical Bulletin. And since Iran has not lost a single barrel from its oil exports, the claim by Reuters that Iranian oil exports amounted to 1.1 mbd in the first week of October is fake news bordering on wishful thinking and daydreaming.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Douglas Houck on October 15 2018 said:
    To add to all of this the noted Israeli journalist, Dana Weiss, recently stated using a "secret" Israeli Ministry of Foreign Affairs document that describes Russia’s plan to aid Iran in subverting the incoming US Sanctions on the Islamic Republic’s oil exports.

    According to Weiss, Iran will transfer its crude oil to Russian refineries on the Caspian Sea. After that Russia would present and sell the oil as Russian and reimburse Iran on the sales. Further that European parties may be complacent in allowing Iran to circumvent the sanctions in order to trade oil w/ Asia with an interest to keep Iran in the JCPOA.

    I'm generally suspect of "secret" documents that are no longer secret, so who knows what the Israelis know.

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