Iran’s shadowy game with oil exports

The Trump administration’s monitoring will extend to the eight countries granted waivers in November to buy Iranian oil.
Sunday 16/12/2018
An Iranian worker walks the platform of an oil facility in the Khark Island.                           (AFP)
Vital industry. An Iranian worker walks the platform of an oil facility in the Khark Island. (AFP)

Iran’s cat-and-mouse game with the United States over oil exports, which are vital for its economy, is intensifying. This comes as production cuts were agreed to by OPEC and Russia steady prices.

In October, oil prices were at $85 a barrel then they recorded a 30% fall. For Iran, however, there has been less volatility than might be expected.

Iranian President Hassan Rohani led Iranian officials in proclaiming victory for his country against the United States in the Vienna agreement of the Joint OPEC-non-OPEC Ministerial Monitoring Committee (JMMC, known also as OPEC+). The agreement exempts Tehran from production cuts of 1.2 million barrels per day (bpd) in the first half of 2019.

A report from the Economist Intelligence Unit (EIU), “Turbulent times: Measuring real-time shifts in a volatile oil market,” suggests Iran’s oil exports fell 25% in October-November from May-June, far less than has been widely reported.

The EIU report is based on research by CargoMetrics, which used satellite imagery and other means to track Iran’s “unofficial” exports. These include ship-to-ship transfers as well as vessels turning off transponders to hide the eventual destination of cargoes. The report puts Iran’s exports at 2 million bpd, notably higher than the 1.2 million bpd widely reported.

For such a figure to be maintained into December seems unlikely. The United States will be monitoring closely, a security consultant experienced in Gulf affairs, told The Arab Weekly. “Not only do they have far more sophisticated satellite imagery than this [the EIU-CargoMetrics report] describes but they also have sailors with binoculars in the Gulf who can observe the displacement of tankers. Once you know how much the tanker has sunk into the water, usually gauged amidships, although visible at the bow, you can work out how much oil is in the tanker,” he said.

The Trump administration’s monitoring will extend to the eight countries granted waivers in November to buy Iranian oil. They received waivers on condition they severely reduce Iranian imports. The United States is to formally review the situation next May.

While the extent of the waivers surprised some market analysts, the refusal of Trump officials to abandon their earlier stated aim of reducing Iran’s exports to zero reflects their determination to keep up the squeeze.

Two days of talks at the JMMC demonstrated how complex managing oil production has become. Vienna highlighted Russia’s growing role in determining output as well as the sensitive relationship between US President Donald Trump and Saudi Arabia. Trump has been tweeting in favour of lower oil prices and Saudi Arabia is facing criticism in the US Congress over the October 2 killing of dissident Saudi journalist Jamal Khashoggi.

Iran, too, was a factor. US Special Representative for Iran Brian Hook met with Saudi Oil Minister Khalid al-Falih prior to the JMMC. Iran argued it should be exempt from any cuts and achieving this was the main reason Rohani hailed the JMMC decision as a victory.

Even so, Oil Minister Bijan Zanganeh told Iranian state television that the atmosphere in Vienna had been “unfriendly” towards Iran. Asked why Iran had not bought refineries abroad to sidestep US sanctions, Zanganeh offered interesting detail. He admitted that Indian authorities refused permission for the Essar refinery to use Iranian crude over and above the amount India had agreed with Washington under its waiver. Essar is owned by a consortium led by Russia’s Rosneft.

Iran is also discounting oil to keep buyers sweet. Reuters reported that Tehran’s January offer to Asian buyers on Iran Light grade is priced 30 cents a barrel below Saudi Arab Light oil. It is pricing Iranian Heavy at $1.25 below Saudi’s Arab Medium grade.

The Saudis are also shaving prices. Even with global oil stocks at the lowest level since mid-2015, JMMC production curbs are not expected to reverse the fall in price since October. In its monthly report, OPEC reduced its forecast for 2019 oil demand to 31.44 million bpd from the 32.97 million bpd in its November report.

Citibank forecast Brent remaining flat at $60 per barrel in 2019. It points to growing production in the United States. At the end of November, for the first time since records began in 1973, the United States was a net exporter of oil and refined products. “The more OPEC+ tried to support prices by withholding oil from the market, the more they give the US shale sector an out,” Citibank noted.

Few are confident about predictions because volatile global markets also weigh fiscal instability in Venezuela, potential supply disruption from Nigeria and Libya and the possible cooling of world economic growth in the face of trade rivalries.

With so much in play, Iran hopes its oil exports will find some safety in the shadows. “I’m working with a number of colleagues to break the sanctions around the clock,” Zanganeh told Iranian television.

“I cannot say what we are doing because it would be taken advantage of by Washington and they would try to block any solution we find.”

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