Iran attempts to evade latest wave of US sanctions with new oil export strategies
According to the Iranian ministry news service Shana, a total of three buyers purchased a collective of eight cargoes totalling 700,000 barrels of Iranian oil. No details on buyers were disclosed as the identities of bidders were kept confidential.
By pursuing this strategy Iran attempts to evade the new wave of US sanctions aimed to slash Iranian oil exports to zero.
Tehran hopes to sell oil to private buyers, rather than direct to foreign clients, will make it harder for the US to monitor and stop its sales.
Iran's crude export sharp fall
While it is hard to get a clear picture of exactly how much the looming sanctions have impacted Iran's exports, it seems that the country's oil exports have been falling much faster than expected.
Oil exports may not exceed one million to 1.5 million bpd, according to industry estimates, down from 2.5 million barrels a day before sanctions were announced.
Refinitiv Eikon data, for example, revealed that Iranian crude exports have fallen to one million bpd so far in November. However, the exports could start to rise again later in November, as the US administration has granted waivers to at least eight countries, including China and India, Iran's two largest oil export destinations respectively. But since the waivers are limited in time (180 days) and scope, it means that Iran will, sooner or later, have to face maximum pressure.
Part of the solution to "dodge" sanctions imposed by the US includes offering oil on the energy exchange with private local entities buying the crude and then reselling it to foreign traders.
Moreover, some believe that Iran simply wants to wait out the Trump presidency and survive the hard times by implementing such tactics, but it remains to be seen how successful and effective this strategy will be in the long run.
|Some believe that Iran simply wants to wait out the Trump presidency and survive the hard times by implementing such tactics|
According to Andrew Stanley an Associate Fellow at the Washington DC based Center for Strategic and International Studies (CSIS), sanctions will severely impact Iran's economy.
"At the moment, at least, things are quite far away from the situation being bad enough to force Iran to the negotiating table. The country has weathered difficult periods in the past," Stanley explains.
"However, to conclude that Iran's strategy is to simply wait out this administration is premature, it remains to be seen what course of action it will ultimately take," he tells The New Arab.
With oil exports falling sharply, Iran is desperately seeking ways to break the siege. Oil revenue is the key to its survival as almost 80 percent of Iran's tax revenues come from the country's oil exports.
Strategy unlikely to prove successful
Iran's government intends to offer oil on the energy exchange once a week, according to Fars press agency. While selling oil every once in a while will not save Iran from the worse, selling it on a daily or weekly basis could boost its oil sales revenues.
But it is rather doubtful whether this could be a winning solution that Iran may rely on. According to Stanley, Iranian efforts are unlikely to prove successful.
Neil Bhatiya, Research Associate and energy expert at the Center for a New American Security, is highly sceptical about Iran being able to sustain high volumes of sales for a very long time – certainly not long enough to wait out the Trump administration.
The major problem for Iran, adds Stanley, is that the vast majority of companies that have been the main purchasers of Iranian oil are not willing to risk running afoul of US sanctions and so will not participate in these activities. Moreover, "through satellite technology, providers of Iran export data can make very good estimates of how much oil is coming out of Iran and where it is going," he explained.
The companies that have been the main purchasers of Iranian oil in Europe, South Korea, Japan, and some in India and China have exposure to the US financial system and will therefore not flout Washington's sanctions to make any purchases that go beyond the allocations issued by the American government for that particular jurisdiction. So, in order to attract buyers who are willing to take a risk, Iran will have to offer considerable discounts.
Finally, under latest NIOC arrangement, buyers will pay 20 percent of the total value of their purchases in Iran's national currency, the rial, with the remaining payments made in foreign currencies, but avoiding the trap of using dollars.
"There may be some Asian purchasers who are not afraid of US sanctions because they do not transact in dollars – they can be designated and it won't change their business practices much. But these will be very small firms, without a lot of refining capacity. So, the revenue stream for Iran will be very modest," Bhatiya tells The New Arab.
While this alternative strategy will not fill Iran's pockets as it will mainly serve as a propaganda tool to raise the public moral, Bhatiya thinks that Iran desperately needs European buyers for its crude more than anything.
Unfortunately, these European buyers would be deterred by potential exposure to sanctions measures. The European Union has been working on setting up a payment mechanism called Special Purpose Vehicle to avoid US retaliation measures and process trade and financial transactions with Iran. But they still have to finalise the details and so far, no European country has volunteered to host the system fearing US retaliation.
|No European country has volunteered to host the system fearing US retaliation|
Other 'creative' strategies
Besides offering oil to private entities through energy bourse, Iran has been using other tactics to cover up its oil exports.
According to TankerTrackers.com, "all Iranian ships switched off their transponders to avoid international tracking systems," Sputnik news reported. Such practice has also contributed to the confusion of data regarding the actual volumes of Iranian oil exports.
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According to Stanley there have been indeed some discrepancies in the data between the main providers for the past two months but by a maximum of 10 percent on total volumes.
"Given the advancement and proliferation of satellite technology, providers of this information can make very good estimates of how much oil is ultimately leaving Iran and so the export numbers will be roughly accurate within a margin of error, which stood at 10 percent in October when the majority of Iranian tankers went dark," he explained.
For Bhatiya, it will probably be as lucrative for Iran to use its smuggling networks to sell oil, rather than try to do it through a central exchange.
The smuggling is harder for the US to detect, and Iran is very good at it as it can rely on a lot of enablers in countries like Turkey, the UAE, and probably elsewhere.
|It will probably be as lucrative for Iran to use its smuggling networks to sell oil, rather than try to do it through a central exchange|
Iran has been partly successful in doing so during the last round of sanctions using very convoluted shipping routes to disguise its tankers, or even changing their flag or ship's name, Peter Harrell from Center for a New American Security told National Public Radio.
Finally, some observers say that Iran will probably try to smuggle its oil, using land routes through Pakistan and Afghanistan. Robin Mills of Qamar Energy told Bloomberg, that Iran could keep about 200,000 bpd of exports undisclosed through a variety of strategies.
The main question is whether that revenue, plus whatever is allowed under the US granting of significant reduction exemptions, would be enough to keep Iran in the JCPOA through 2020. According to Bhatiya no one knows for sure what Iran's real pain threshold is.
Stasa Salacanin is a freelance journalist who has written extensively on Middle Eastern affairs, trade and political relations, Syria and Yemen, terrorism and defence.