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Russia To Assess Legal Frame For Iranian Oil Imports

Oil rigs

Russia will assess its agreement with Iran to import crude oil in exchange for goods “from the legal point of view,” Energy Minister Alexander Novak told media following reports that the U.S. State Department has started pressuring its allies into completely cutting Iran out of international oil markets.

Russia, of course, does not rank among these allies, and, what’s more, it is—like Iran—subject to U.S. sanctions, so it would probably be the last country to decide it might be wise to heed Washington’s warnings. What’s more, after it brought Iran on board with the production increase at the OPEC+ meeting last week, analysts suggested Moscow is in a position to ask Washington to return the favor.

In any case, “the memorandum [with Iran] that we signed in 2014 is still in force,” Novak said. The memorandum stipulates an oil-for-goods mechanism that sought to help alleviate the pressure on the Iranian economy amid international sanctions. However, the mechanism only started working last year, when Russia and Iran agreed with the latter to start shipping 100,000 bpd to Russia in exchange for various goods. This year, Novak talked about an extension of the mechanism by five years.

Yet Russia’s closeness with Iran doesn’t end there. Earlier this year, before President Trump slapped sanctions on Tehran, a Russian presidential aide told media Russia companies including Rosneft, Gazprom, Gazprom Neft, and Lukoil that they planned to spend up to US$50 billion on oil and gas field development in Iran.

Related: Oil Prices Spike Despite Saudi Plan For Unprecedented Oil Export Surge

Since then, things have changed, though by how much remains to be seen. Lukoil, for one, has said it would freeze its Iranian operations for fear of losing access to U.S. financial markets.

Several major importers said earlier that they would seek waivers from the sanctions to continue buying Iranian crude. However, the latest from the State Department does not suggest that the United States would be in any way willing to grant anyone a waiver, even if this means uncomfortably higher prices because of the supply drop.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on June 27 2018 said:
    Russia has every reason to ignore US sanctions against Iran and to continue to implement the oil-for-goods barter trade agreement with Iran having been subjected to US sanctions against it since 2014.

    The fact that the US government is asking its allies to completely halt oil purchases from Iran means the administration is not sure that the sanctions against Iran will work this time.

    And with the petro-yuan providing a viable alternative to the petrodollar and with most of the world particularly China, the European Union (EU) and India continuing to buy Iranian crude, the sanctions are doomed to fail. Halting oil purchases of Iranian crude by some of the US allies will hardy impact on Iranian oil exports as China will happily absorb that loss in no time particularly in the current tense atmosphere with the United States. Moreover, it will be a great opportunity for China to consolidate the petro-yuan in global crude oil contracts. India could pay for oi imports from Iran in barter trade.

    That is why I have been projecting that Iranian oil exports will not lose a single barrel of oil as a result of the US sanctions. The petro-yuan has virtually nullified the effectiveness of the sanctions.

    Sooner or later the global oil market will realize that US sanctions on Iran are more of a hype.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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