Discounts, bartering and smuggling are among the tactics Iran may lean on to keep almost 800,000 barrels a day of its oil exports flowing after U.S. sanctions resume in November.
Iran’s Oil Minister Bijan Namdar Zanganeh alluded to this toolbox, which was used in the past, when he said Iran will find “other ways” to keep its crude in the market. The measures won’t be enough to blunt the full impact of sanctions on oil exports, which have already slumped to the lowest level since March 2016.
In the last era of oil industry sanctions, the OPEC nation disabled tracking systems on its fleet of tankers, concealing destinations and volumes of oil exports. Millions of barrels of Iranian oil were unaccounted without the trackers.
Almost 200,000 barrels a day of the country’s post-sanctions oil sales could be undisclosed, according to Robin Mills, chief executive officer of consultancy Qamar Energy in Dubai. “Exports at these levels will be important in cushioning the financial blow to Iran, but will not have a major impact on the world market.”
China, Turkey and India will likely continue to buy Iranian oil after the resumption of sanctions on November 4, with China’s smaller refineries taking some of the murky, undisclosed shipments, according to Iman Nasseri, managing director of the middle east at FGE London. In total, Iran could export 800,000 barrels of oil a day well into 2019, including some 20,000 barrels sent by trucks to Iraq, Afghanistan and Pakistan, he said.
History shows that Iran can keep exports going, albeit at a far lower rate, even as Japan, South Korea and most European countries shun its oil months before the resumption of sanctions in November. Many buyers won’t be able to resist steep discounts, and some may revamp a barter trade that was effective earlier this decade.
“Barter trade and special funding mechanisms are among ways that could allow payments to Iran to continue within the framework of the sanctions,” said Ehsan Khoman, head of Middle East and North African research at Mitsubishi UFJ Financial Group Inc. He said India devised agreements between 2012 and 2016 to buy Iranian oil with rupees, and then Iran used the proceeds to import goods from India.
Despite access to these tactics, there is little doubt that Iran’s energy industry and economy will be hurt by the U.S. penalties. The country’s exports to Europe have already plunged 45 percent, or 226,000 barrels a day, since May, and Total SA and Royal Dutch Shell Plc have completely stopped buying the country’s oil.