Since the lifting of financial sanctions, the Islamic Republic has sought to ramp up oil production in a bid to regain its market share and today, almost six months after the implementation day, Irans oil output stands at 3.7 million bpd, while its oil and gas condensate exports is more than 2.2 million bpd and as senior officials say there are no immediate plans for a fresh rise in its oil exports from the current level.
Likewise, the country has endorsed several oil agreements, namely with France's Total, Greeces Hellenic and a number of Italian companies, and all these post-sanction deals are in form of term contracts, as Seyed Mohsen Qamsari, the director for international affairs of National Iranian Oil Company (NIOC) declared in a news conference which was held on the sidelines of Tehrans 21st International Oil, Gas, Refining and Petrochemical Exhibition (Iran Oil Show 2016) on May 6, IRNA reported. Admitting that in term crude contracts payments are cleared via U.S. dollar and Euro, NIOC Managing Director Rokneddin Javadi on the same date and occasion announced that all barriers on the way of transferring money between Iran and some of its oil customers would be removed within a month, Tasnim news agency reported. The senior oil official did not disclose details in this regard though, adding that related negotiations are underway.
The fundamental question would be framed here about the feasibility of term contracts under the present conditions, since based on primary sanctions imposed by U.S. Treasury Departments Office of Foreign Assets Control (OFAC), financial transactions in international oil market are dollar-based and Iran is still ruled out of American financial system (U-Turn), i.e., dollar-based SWIFT transactions are inaccessible to Iranian entities and individuals. Moreover, Iranian banking system, which was locked out of the international interactions during sanction years, has newly taken some initial steps as of the withdrawal of financial embargos to re-emerge in international banking arena and recuperate its brokerage relations with western and European banks, the goal which does not seem to be reached overnight.
It is worth noting that as in sanction years, Iranian officials still attempt to lesson reliance on dollar and eliminate this currency from the countrys international trade through restricting Irans transactions to some specific countries namely India, China, Russia, and utilizing their currencies. But in practice, the endeavor to replace dollar with other currencies, could be basically foiled because U.S. dollar has gained strength in recent years thanks to Americas economic growth via overcoming banking and financial crises, the countrys current 25-percent share of international trade market, and its exports volume of shale oil. International entities confidence in the U.S. dollar is ever-increasing. Consequently, in post-sanction era, the Islamic Republic is better to think of adopting a different attitude if it intends to expand its trade ties with the globe.
Considering all the above mentioned, the spot market seems to be a better option for Iran to pursue its oil business in short-term, Mahmoud Khaghani, an international energy expert told Tehran Times. Iran can take advantage of spot market as a short-term measure to come back to the international oil market, since spot crude contracts can be made with various countries based on currencies other than dollar, when dollar-based ones entail some difficulties, he said, for medium and long-term goals, term contracts seem more efficient. As Khaghani clarified, countries who have had a low volume of oil purchase from Iran (for example north-west European ones) and are currently customers of our rivals (such as Saudi Arabia) but wish to improve their trade balance with Iran in post-sanction atmosphere, can purchase Iranian oil via spot contracts. Besides, in case of any future hike in oil prices, spot contracts can bring quick profit for Iran, he added.
Whether Irans oil contracts are made in form of term or spot, an acute dilemma arises here. In mid-January, President Hassan Rouhani called on for economic reforms and less reliance on oil revenues in the post-sanction era, noting that low oil prices were the best reason to cut "the umbilical cord" to oil, Reuters reported at the time. But under the conditions that the international demand for fossil fuels is witnessing an incremental downward trend, Iran, which tried to make its economy less reliant on oil revenues under sanctions, seems to be deviated from the track merely to revive its market share even at the cost of selling the black gold in present low prices. In better words, in spite of the conferred joint investment in oil projects, the ongoing visits, negotiations, and purchase agreements between Iranian oil officials and their foreign crude oil customers reveals lack of a clear and coherent energy policy, a comprehensive roadmap planned considering post-sanction conditions, to be applied making macroeconomic decisions.
Irans nuclear deal has been implemented, though a lot still remains on-hold due to some reasons:
- The current Tehran-Washington political conflicts and Americans obstructive measures thwart the nuclear deals thorough execution casting a shadow over Tehrans international economic relations;
- International banks and entities with U.S.-based operations are hesitant about trading with or investing in Iran because they are concerned with existing non-nuclear sanctions and the prospect of new ones; and
- The impact of some major upcoming political events, including Irans new term of parliament which will start work in May, U.S. presidential election which will be held in November, and also Irans presidential elections in June, 2017, will be determined through time.
By Tehran Times
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