SHANA – A senior Iranian oil and gas market analyst says the current state of oil supply in the market is not comparable with that in the 2011-2012 period where a major producer like Iran could be eliminated from the global oil market or even its supply be halved.
When the list of the anti-Iranian US sanctions was released, the world rightly acknowledged that the oil policy of Trump Administration had failed, and the world was still in need of Iran’s oil supplies. Now, Tehran is free to sell oil to eight countries such as Japan, South Korea, India, China, Italy, etc. Why Trump was defeated in its oil policy towards Iran is the topic of an exclusive interview Shana held with Fereydoun Barkeshli, president of Vienna Energy Research Group in Austria and the National Iranian Oil Company’s former general manager for OPEC and international affairs, who stresses that “Iran needs to set up an energy strategy roadmap based on its own interests and the full knowledge of the global conditions.”
The following is an excerpt from Shana’s interview with Mr. Barkeshli.
Why did the US fail in boycotting Iran’s oil?
In fact, President Trump’s failure in imposing sanctions on Iran’s oil exports was clear from the start. Trump, in his personal manner, explicitly said that he would bring Iran’s oil exports to zero. From the very beginning, this statement made observers think whether Trump might have backed down on imposing embargos on Iran; inasmuch as market experts know well that every crude oil supply with certain characteristics and technical specifications are suitable for different refineries or petrochemical complexes. Incidentally, given the arrival of shale oil (very light crude) supplies into the market, the need for a kind of relatively heavy crude oil from Iran is unavoidable, and I guess that even some US refineries will need some of Iran’s crude oil supplies.
The other point, however, concerns the oil market structure. Of course, it is true that on the demand side, there was a slight decline in the second half of 2018, which is due to a decline in consumption in China; but on the supply side, none of the producers including small ones like Gabon and Angola, or major ones, such as the sheikdoms in the Persian Gulf and North Africa, could even produce OPEC quota allocations. This is a valid report which has been endorsed by the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency in Paris.
By the end of the first half of 2018, Saudi Arabia and Russia increased their production to some extent and began to stockpile oil. The US has also kept stocking crude oil, but the inventories are still below the average of the past five years.
Therefore, the supply situation is not like the years 2011 and 2012, when a major producer like Iran could be eliminated from the global market, or its exports be halved or even brought to zero. In effect, the market structure, beyond the price trend, imposes its conditions on political decisions.
What is the most important reason for the US to grant waivers to oil buyers?
From the outset, the United States had announced that countries which would reduce their oil purchases from Iran prior to imposition of the sanctions would be granted waivers. As we saw, a number of countries and companies cut their purchase of Iranian oil from a while prior to imposition of the sanctions and, in some instances, some completely cut their oil imports from Iran. In fact, this was a kind of collusion between those countries and the United States so that they would be granted waivers if they supported US policies against Iran. At the same time, Washington intended to assess market conditions without Iranian oil; granting sanction reprieves to eight countries to continue buying oil from Iran shows that the US has had no choice but to back down from its initial stance to bring Iran’s oil exports to zero.
How much will oil prices rise after Iran sanctions?
Well, I remember the time when Iraq’s Saddam invaded Kuwait in the 1990s which coincided with an OPEC meeting. Reporters woke Zaki Yamani, the then-Minister of Oil (Petroleum) and Mineral Resources of Saudi Arabia, during night and asked him now that Saddam had attacked Kuwait and 4.5 mbd of crude oil had been removed from the market, “what do you think will be the price of crude oil?” Yamani responded it would be $100 per barrel. I should remind you that at that time, the price of crude oil was $20 per barrel. Of course, the prices did go up to only $32 a barrel, but they never reached $100. What I mean is that the risk of predicting prices in the oil market is high, and it is interesting to note that when experts predict the prices, they will never be reprimanded even when they do not predict the prices correctly. Brent crude is now priced at around $70 per barrel. Future and geopolitical changes can alter the situation. The difficult and unstable conditions in the Arabian Peninsula may have more significant effects on oil prices. The Americans are at war with us, but they have taken their warships to Saudi coasts to protect the Saudi regime. Anyhow, by the end of 2018, there can be no expected change in the price of crude oil.
What impact does tapping oil inventories have on the global market?
Withdrawal of oil from strategic reserves is like triggering the alarm for the oil market. If you remember, President Trump announced a while ago that he would tap US strategic oil inventories, which was in fact one of his biggest mistakes and may have been a sign of his frustration. When Henry Kissinger asked NATO and industrial nations in 1974 to build strategic oil inventories, he said in his speech in Paris, “our goal was not to physically use these reserves, but they are made for our enemies to know that they can never impose embargos on us.” This announcement by Trump was a perfect illustration of his weakness and fear in light of the decision to impose sanctions on Iran’s oil exports.
How long can the US continue its bullying behavior in the world?
President Trump is striding in several, sometimes overwhelming, fronts, at the same time; pulling out of the North American Free Trade Agreement (NAFTA) and exerting pressure on Mexico, putting pressure on the European Union and weakening NATO, the various economic and political challenges with China, centralization of the already-unstable Middle East as the center of his foreign policy and many other domestic and international policies, have put Trump in a difficult situation. The strategic economic depth of Iran is not comparable to any other country in the Middle East; there are over 20,000 medium-sized and large industrial units in Iran; the technological intelligence capabilities of the Iranians are tremendously high; the widespread presence of Iran’s Internet network in the world is ranked seventh. Of course, one of our main weaknesses is in the public relations, which is not capable of presenting the country’s capabilities at the required level. When and how the US bullying policies will end is not up to Iran. People choose their leaders as they wish. Our goal is to preserve and regulate our relationships and interests.