August 9, 2019
by Warren L. Nelson
Iran’s oil revenues in July came to only about 5 percent what it earned from oil exports in the 2012-2015 period of Obama sanctions, according to calculations by the Iran Times.
China has resumed buying American crude and appears to have stopped buying any Iranian oil, as Iranian oil revenues may have fallen lower than at any time since the Mossadegh era of the early 1950s.
China is the major recipient of Iranian oil, but it appears to have taken delivery of only 250,000 barrels a day in July after the United States revoked the waiver that allowed it to buy Iranian oil openly. However, China gets 250,000 barrels a day free, in repayment of Iran’s debt to China, suggesting that China is not paying for any oil it now receives.
The other major receiver of Iranian oil is believed to be Syria. But Syria doesn’t pay for Iranian oil either; Iran granted it a credit line years ago that gives it oil to be repaid at some unknown time in the future.
US officials told Reuters they believe 50 percent to 70 percent of Iran’s oil exports are going to China and roughly 30 percent to Syria.
The remaining shipments are being sold under the radar. The amounts are unclear and the recipients are unknown. (Some shipments are believed to be piped from one tanker to another on the high seas to hide the origin of the oil.) The one thing that is certain is that the buyers are taking Iranian oil because it is steeply discounted, which means Iranian revenues are severely depressed.
On top of that, the bottom fell out of the oil price early in August. (See oil price chart on page six.) The price dropped below $60 a barrel on August 6. And Iran is having to discount its clandestine sales from that price, suggesting its revenues now are less than $50 a barrel. Compare that with prices above $105 a barrel during the last period of stiff sanctions from July 2012 through December 2015.
Iran only sold 1.1 million to 1.2 million barrels a day during that period, but got revenues exceeding $105 a barrel. Now it is selling (i.e., getting paid) something like 100,000 to 300,000 barrels a day (the numbers are very soft) and getting less than $50 a barrel. At the high end, Iran’s oil revenues right now are on the order of one-eighth what they were in the last sanctions period. And the economic pinch then was severe enough to force the regime into making the nuclear deal with the Big Six.
Iran, however, is refusing to enter into talks for a new deal. Publicly, it says it can’t trust the United States since it already withdrew from the last deal. Privately, Iranian officials acknowledge that they would have little leverage on entering new talks.
Reuters cited firms that track tanker movements as saying China took delivery of somewhere between 142,000 and 360,000 barrels a day of Iranian crude during July. The mid-point of those estimates is 251,000 barrels a day, just what Iran is supposed to ship in debt repayments.
(Deliveries to ports in China are higher, but those are deliveries to storage sites in China. China doesn’t pay for that oil. Iran simply stores it because Iran cannot lower production more without risking damage to its oilfields, so it must store oil it cannot sell.)
Kpler, a data intelligence firm which is used by the International Energy Agency (IEA), estimated Iran’s total shipments (paid and unpaid) in July totaled 399,000 barrels a day, down one-quarter from the 532,000 barrels a day it estimated Iran shipped (paid and unpaid) in June. Kpler said Iran is “clearly struggling to find buyers.”
Allowing for the unpaid shipments to China and Syria, this suggests Iran sold only about 100,000 barrels a day in July and earned only about $5 million a day. Yet its revenues during the 2012-2015 sanctions period easily exceeded $100 million a day.
In other words, Iranian oil revenues in July were most likely on the order of 5 percent what it took in during the 2012-2015 sanctions.
For comparison sake, Iran’s average oil exports since the end of the Iran-Iraq War (excepting the 2012-2015 sanctions period) were 2.5 million barrels a day.
It needs to be noted that all figures on Iranian production and exports are very soft. Iran has even stopped announcing monthly production figures, although few believed those numbers when they were published. As for exports, the Iran Times collected estimates at the end of July from five different organizations. They varied from 100,000 barrels a day to 1 million for the month of July. Excluding those outlier numbers, the estimates were 120,000, 225,000 to 350,000 and 417,000. But that last estimate was from Kpler, which later revised its estimate downward to 399,000.
Iranian Oil Minister Bijan Namdar-Zanganeh has avoided giving any statistics on exports, but publicly scoffs that US sanctions are having any major impact. He regularly insists that “the world cannot do without Iranian oil.” As recently as July 22, he said, “They can’t replace our oil.” A few days earlier, he told the Majlis, “Sanctions have no impact on Iran’s oil sales.”
The Iranian media regularly reports on Iranian oil deliveries to China—without saying that Iran is not paid for the oil that goes into storage or for 250,000 barrels a day of crude delivered for debt repayment.
But that is just whistling passed the graveyard. It is clear that at the moment the world can do without Iranian oil—and without Venezuelan oil as well. The market is flooded with oil, largely as a result of US frackers.
In addition, demand is weak. US gasoline consumption is going down due to more efficient vehicles. The Chinese economy has slowed compared to past years and China needs less oil. The global economy has slowed. The demand for oil has been reduced.
In other developments:
- One Chinese company, and only one, has been caught buying Iranian crude since the US waiver for Chinese purchases was revoked May 2. That was Zhuhai Zhenrong Co., which is linked to the Chinese military. The United States sanctioned that firm July 22.
- Saudi Arabia said it plans to boost the capacity of its east-west pipeline by 40 percent to 7 million barrels a day over the next two years so it can ship crude out via the Red Sea if Iran should ever block the Strait of Hormuz and halt exports by that route. The UAE recently opened a pipeline that also bypasses the Strait.
- The New York Times reported that the US spy ring Iran claimed recently to have broken up was mainly trying to penetrate Iran’s oil sales operation, to discover how much money Iran was earning and to learn who it is selling to so Washington can try to end those sales. Hassan Soleymani, the editor of the daily Mashregh, told the newspaper, “How we evade sanctions to sell our oil and how we move money is now the country’s most vital and sensitive information.”