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"Sanctioned" Iranian oil to plunge to all-time low of $50/barrel
Iranian oil expected to plunge to all-time low of $50/barrel at the onset of new sanctions
In an interview with Voice of America (VOA), Mehrdad Emadi, European Union economic adviser, explains in a realistic and precise analysis of the new round of sanctions, the enormity of their impact on Iranian economy that was already suffering the adverse effects of Sepaah’s (IRGC) imposing presence in the oil industry.
In response to the question regarding the sanctions’ impact on European Union oil imports, particularly Greece, Emadi says: “Short of Greece, all the other EU nations are well-planned and prepared, even Spain with its closed economy. Greece is an exception, due to its highly brittle economy. But the rest of Europe is looking at immaterial numbers – around 1/5th of Iranian oil exports."
"However, in the past eighteen months, EU has been Iran’s largest source of revenues, as 35-40% of Iranian oil income was provided by EU and paid for with solid, international currency. If such purchases had abruptly stopped, price of oil would have sky rocketed across the globe. But the sanctions administrators’ plan was to gradually reduce Iran’s currency revenues. The oil sales issue came next." He adds.
Iran’s currency revenues from oil exports dropped by 40%; the 6-months time given by the U.S. allowed Iran to stay in the market, while other countries were given a chance to increase their production and thus four countries – three of which OPEC members – helped reduce oil prices in the global market, as Iran’s share of oil production and sales declined. An outcome that Iranian regime was not counting on! The drop in oil prices would naturally underscore the role of the sanctions.
Even if Iran was to sell its oil at $75/barrel to its existing oil customers which consist of developing nations that are demanding substantial discounts -- discounts against international oil trade laws -- after the discounts and insurance costs, Iran’s net income will drop down to $50 per barrel.
In his latest trip to China, Ahmadinejad had promised an increase in Iranian oil exports to that country. However, it appears that China’s goal was not only to circumnavigate the U.S. sanctions, but also to impose the entire cost of oil trade on Iran by having the oil delivered to Chinese ports, insured and prepaid by Iran!
Is Iran capable of insuring the oil tankers?
Emadi: The ships are registered and bear no legal issues, however their capacity runs just under 11 million barrels rendering their trans-Asian excursions extremely costly, as they would be semi empty for long periods of time. On the other hand, Iranian tankers have limited capacity, and problems with getting insurance coverage. European insurance companies are not the sole carriers of premium contracts and often share them with others. And if Iran is expected to carry the coverage by itself, Mehr Insurance is not globally recognized and any insurance provided by Iran will be devoid of international certification. And even a minor accident would cost Iran hundreds of millions of dollars.
How feasible is the idea of complete replacement of Iranian oil in international markets?
Emadi: I tend to agree with those who oppose the notion. Perhaps as a short-term possibility, but not in the long run, because Iranian crude oil has a rare quality of ½ sulfur, ½ heavy. However, since the 6-month deferment time has run out, all those countries historically loyal to Iranian oil, have made amends in their oil refining systems in order to substitute Iranian oil with alternative types provided by Iran’s replacements. Once this happens, these countries will never return to Iran as an oil customer. Russian oil for instance is extremely similar to Iranian exportable oil in terms of quality.
Iran has had three long years to plan for dealing with the sanctions, yet it only continued to pontificate instead and did absolutely nothing to manage the situation internally. As a result, it now has no choice but to sell an $80 barrel of oil for $50. Another reason for the sharp drop in the country’s oil exports is the lack of access to modern technology and adequate expertise necessary to rebuild its old refineries, particularly since all foreign organizations were driven out and oil projects taken over by the Sepaah.
Let us not forget that over 3000 oil engineers with over 10 years of work experience each, have left the country, and the void created in their absence combined with lack of foreign investment have severely limited Iran’s oil extraction capabilities! Aside from the sanctions, outdated technology is the second primary reason for the decay and decline in Iranian oil industry – ever since Sepaah’s take over.