The Strategic Importance of the Strait of Hormuz and Global Energy Security

The principle governing the world oil market is, simply put, supply and demand. When there is a balance between supply and demand in the oil market, prices remain stable. Based on assessments by geopolitical theorists, an open conflict in the Strait of Hormuz, and even the threat of a possible conflict, can have dangerous consequences for energy security, and, consequently, energy producers and consumers themselves.

THE WORLD’S MOST IMPORTANT OIL SUPPLY CHOKEPOINT

According to the US Energy Information Administration, in 2018, 21 million barrels of oil and oil derivatives (equivalent to 21 percent of global oil and oil derivatives) were shipped daily from the Strait of Hormuz. The United States imported 1.4 million barrels of oil and oil derivatives per day from the region, transported through the Strait of Hormuz. According to the US Energy Information Administration, in 2018, more than 76 percent of the oil and oil derivatives from the Strait of Hormuz were shipped to Asian countries. Most of the oil used by China, India, South Korea, Japan and Singapore passes through the Strait.Посмотреть изображение в Твиттере

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Javier Blas@JavierBlas

CHART OF THE DAY: Timely briefing note about the Strait of Hormuz from the @EIAgov, including updated 2018 #oil flow data | #OOTT #Iran Link here: https://www.eia.gov/todayinenergy/detail.php?id=39932 …212:12 – 20 июн. 2019 г.Смотреть другие твиты Javier BlasИнформация о рекламе в Твиттере и конфиденциальность

The Strait of Hormuz is one of the most important international waterways in the world, and facilitates the export of about one-fifth of the world’s crude oil. Due to reduced Iranian oil exports and instability in the region, the price of crude oil has increased dramatically in recent weeks, and the closure of the Strait of Hormuz will likely continue to spark turbulence in the global energy market.

CHINA

The control of resources and energy pathways (which play a role role in energy security and economic growth of major energy consuming countries) has always been a priority of world powers and factored in heavily to global political equations. The United States sees an opportunity to control oil trafficking in important export zones such as the Strait of Hormuz to reduce the economic growth of China and other countries.

For China, oil security is the most important issue in regard to energy security, while for other countries it is often gas or other fuels. According to the latest statistics, China is the biggest beneficiaries of the Strait of Hormuz; they receive about 4 million barrels of oil per day from Saudi Arabia, Iran, Kuwait, Iraq and the United Arab Emirates. Around 42% of China’s imported oil passes through the Strait of Hormuz.

Lowering the importance of the Gulf region’s oil for the United States may reduce the security of their interests in the region. The use of regional markets, the prevelent issue of international terrorism and the prevention of non-peaceful nuclear expansion, along with controlling the flow of oil and energy, are among the major factors compelling US interest in the region. This assures that competition and security questions for China in the Strait will only continue to rise.

THREATS TO CLOSE OF THE STRAIT OF HORMUZ

Iran’s recent threats to shut down the Straight are hardly the first of their kind. Last year, Iranian President Hassan Rouhani said that if the United States continues its efforts to cut Iran’s oil exports, Iran will ensure that no other country can export its oil. Iran’s Supreme Leader Ayatollah Khamenei said that Rouhani’s threats represent the official policy of the government. Unilateral action by Iran to stop shipping ships in the Strait of Hormuz, according to international law, will be considered as the pretext for war for those countries that rely on the Strait and their allies.Посмотреть изображение в Твиттере

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Platts Oil@PlattsOil

UPDATE: US to end Iran sanctions waivers in May; Iran threatens to shut Strait of Hormuz | #crudeoil #OOTT | @BrianJScheid + @meghangordon story: http://plts.co/mEai50rbYkS 1511:07 – 22 апр. 2019 г.23 человек(а) говорят об этомИнформация о рекламе в Твиттере и конфиденциальность

The strategic position of the Strait of Hormuz allows Iran to levredge its control in order to achieve specific economic and political goals. If the Straight were to be closed, the flow of oil would spiral into a deep shock, making it very difficult for countries that ship oil from the area, and very costly on their economies.

THE CARTER DOCTRINE AND THE IMPORTANCE OF THE STRAIT OF HORMUZ

In the early years of the Iran-Iraq war, under the aegis of President Jimmy Carter, “Centcom” was established to maintain security and stability in the Gulf region. The principles of the Carter Doctrine in regard to Persian Gulf security are as follows: “Any attempt by foreign forces to attack the Persian Gulf is an attack on the vital interests of the United States. Such attacks must be repulsed in any way that is necessary, including military action.”

ALTERNATIVE ROUTES TO THE STRAIT OF HORMUZ

Saudi Arabia built pipelines in 2007 that would allow the transit of oil from the Persian Gulf to bypass the Strait of Hormuz. The Saudi Arabia Petroline (East-West pipeline) is 750 miles long, extending from oil fields east of the country to the Red Sea in the west to the port of Yanbu.

Through the petroleum system, the Saudis can go round the Strait of Hormuz or Bab Al-Mandeb and reach tankers in the Red Sea, and from there the Suez Canal and the Mediterranean. The pipeline has not yet been completed. Saudi Arabia also has an inactive pipeline that crosses Iraq, but has ceased Iraqi operations after the Iraqi invasion of Kuwait.

Dan Tsubouchi@Energy_Tidbits · 29 мая 2019 г.

Bolton seems to confirm May 6 Iran report of explosions at Yanbu port, “had been a 4th unsuccessful attack on Saudi Arabia’s Yanbu port a few days before the operation off Fujairah” Remind Houthis long range missile threaten critical Saudi oil infra. https://www.dailymail.co.uk/news/article-7081167/The-Latest-Bolton-says-Iran-stick-nuclear-deal.html …John Bolton says Iran ‘almost certainly’ behind oil tanker attacksThe U.S. National Security Adviser said he was sure Tehran was to blame for the attacks earlier this month. He was speaking to reporters in Abu Dhabi ahead of emergency summits in Saudi Arabia.dailymail.co.uk

Dan Tsubouchi@Energy_Tidbits

Yanbu: EIA data – 2nd most critical Saudi oil infrastructure, only export capacity not thru Strait of Hormuz, oil pipeline 4.8 mmb/d & NGL pipeline 0.29 mmb/d to Yanbu, 635,000 b/d refining capacity, export terminal storage capacity 12.5 mmb and loading capacity 6.6 mmb/d., #OOTT208:52 – 29 мая 2019 г.Информация о рекламе в Твиттере и конфиденциальность

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Смотреть другие твиты Dan Tsubouchi

Earlier this year, the UAE, with the intention of circumventing the Strait of Hormuz, signed a contract with a Korean company (SK Engineering and Construction Company (SKEC) to build the world’s largest oil storage facility. The capacity of this warehouse will be 42 million barrels. This oil storage will be built in the Fujairah area of ​​the eastern part of the country (by the Emirate coast of the Oman Sea and the eastern side of the Strait of Hormuz). The UAE has already built a pipeline that can transport 70 percent of its oil production to the international markets without the Strait of Hormuz.

Meanwhile, in the event of a military conflict in the region, plans to bypass the Strait of Hormuz will not provide security for the transfer of oil from the region to the global market.

QATAR AND LNG EXPORTS

Along with carrying oil from the Strait of Hormuz, more than a quarter of the world’s LNG is also transported through the waterway. The importance of the Strait of Hormuz for Qatar is more than other countries in the region. As the largest LNG producer and exporter, the country needs the stability and security of the region to deliver LNG to its customers (mainly in East Asia) at a specific time. Given the fierce competition in the global LNG market and the widespread investment of the US, Australia, Russia, Mozambique and in the LNG industry, any conflict in the region will cause not only part of Qatar’s share of the LNG market to be lost, but other countries will be able to replace Qatar as the largest producer and exporter of LNG. In the event of a military conflict in the region, the LNG market will also be damaged. The price of this product will increase and countries that simultaneously import oil and LNG from the region will be more harmful.Посмотреть изображение в Твиттере

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USQBC@USQatar

The #UnitedStates & #Qatar are #EnergyPartners. Qatar’s supply of #LNG is critical to global stability & a $30-$40B expansion project will ensure a stable supply. #USQatarBusiness208:35 – 9 июл. 2019 г.Смотреть другие твиты USQBCИнформация о рекламе в Твиттере и конфиденциальность

Maintaining security in the Strait of Hormuz is vital for all oil-exporting countries. If the Saudi and Emirate pipelines can reach the Red Sea with full capacity, and the UAE’s stockpile will be operational on time, and the need for these countries to use the Strait of Hormuz will be reduced. In this context, the strategic importance of the Strait will be reduced for exporters and consumers in the medium term. This would mean a geopolitical change in energy in the medium term.

Every country in the region relies on its stability and security in order to export oil and related products in time. Because of this, any conflict in the Strait of Hormuz is against the national interests of Qatar, which exports oil and is the world’s largest LNG exporter. LNG cannot be exported through the pipeline, and the country needs to export its LNG through the Strait of Hormuz, or suffer a decline in its share of the global LNG market and, consequently, a reduction in its foreign exchange earnings.

In a worst-case scenario, the oil market will suffer intensely due to a possible conflict in the region, or as a result of Iran taking action to close the Strait. Oil prices will increase, and energy security and economic growth will be faced with crisis. As a result of these considerations, the possibility of establishing a global consensus against any country closing the Strait of Hormuz will also increase.

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US Oil Embargo Stalls Iran-India Energy Relations

Before the Trump administration decided to target Tehran’s oil exports, Iran and India experienced a positive trend in relations.



India was Iran’s second largest oil customer, importing 457,000 barrels of oil a day before the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in May 2018. Last November, India was one of eight countries that received a six-month waiver to continue importing Iranian oil; it bought 300,000 barrels per day during this period. In April, however, the Trump administration did not renew the waivers. India announced on May 24 that it would abide by US sanctions and stop all such imports.



US sanctions also forbid foreign investment in Iran’s energy sector. In the past, India had expressed interest in developing the Farzad B gas field, which is shared between Iran and Saudi Arabia. In 2008, an Indian company, the Oil and Natural Gas Corporation (ONGC), discovered the field, whose reserves are estimated at around 22 trillion cubic meters. India made a $3 billion offer to Iran for a thirty-year extraction of this field, from which Saudi Arabia already produces 500 million cubic meters of gas a day, but was turned down. In 2016, Saudi Arabia signed a $1 billion contract with Indian and Singaporean companies to increase production in its share of the field from 500 million cubic meters per day to 2 billion cubic meters.

Energy security and resource diversification is a key pillar of Indian foreign policy. India is the third largest consumer of oil in the world and imports about 80 percent of its oil needs. 

In recent months, the US has increased its own energy exports to India and signed a 20-year contract to export liquefied natural gas (LNG) to India. Iraq and Saudi Arabia are also seeking to increase their share in the Indian oil market. 



India’s largest refinery, Indian Oil Corporation, this year signed its first long-term agreement to import US oil. The contract, worth $1.5 billion, covers 60,000 barrels per day from March 2019 to March 2020. The company previously bought US oil from the spot market and signed a short-term contract in August 2018 to buy 6 million barrels of oil from the United States between November 2018 and January 2019.



According to India’s Minster of Petroleum and Natural Gas, Dharmendra Pradhan, India will compensate for the gap caused by the drop in Iranian oil imports by importing oil from other OPEC member countries. In addition, India will look to the United States and Mexico to meet demand for gasoline, diesel and other refined petroleum products. 



One area of India-Iran cooperation that has so far escaped US sanctions is the Chabahar port in southeastern Iran on the Gulf of Oman. India aims to use the port to increase its influence in the region, as well as to gain more market share from Afghanistan, Central Asia and the Caucasus. India has now become one of the world’s leading exporters of goods and services. Finding a route that reduces the time it takes to deliver goods and desirable in terms of cost and security is a constant concern for Indian officials and businessmen. The Chabahar port can serve as a gateway to Turkmenistan, Afghanistan, Uzbekistan, Kazakhstan, Azerbaijan, Armenia, Georgia and Russia. India could also use Pakistani ports to access the Central Asian and Caucasian markets, but Chabahar is politically and economically more affordable and more reliable.

Despite India’s public acceptance of the US oil embargo, analysts believe that Indian oil imports from Iran, while significantly reduced, will not completely end. It is expected that Iran can still sell 100,000-150,000 barrels per day (bpd) to smugglers in international waters who will then deliver this to India. 



However, India oil imports are down 57 percent from April 2018. India importedabout 277,600 bpd from Iran this April, down about 31.5 percent from March.The Indian government has announced that it will postpone final decision on Iran’s oil imports until after Indian general elections. Meanwhile, Iranian Foreign Minister Mohammad Javad Zarif has held talks with his Indian counterpart, Sushma Swaraj, during his visit to New Delhi on May 14. 

During the previous sanctions period, India continued to import oil from Iran and paid imported oil money with Indian currency, the rupee. It seems that the government of Narendra Modi will try to continue importing oil from Iran. New Delhi is currently mulling over plans to use Iran Pasargard Bank in India to make the transactions for Iranian oil. 



India is likely to buy oil from Iran with a special discount, but the main question is how it will be possible for the Indian government to pay oil money to Iran. It is important to note that during 2017 and two years after the signing of JCPOA, Iran has not received all money from India for exports oil during pervious sanctions. 



The Modi government is interested in expanding energy relations with Iran, but without solving the money transfer problem, it will be difficult for Iran to export more oil to the Indian market. Another key issue is how much the Modi government will be able to resist the Trump administration’s pressure to cut off Iranian oil imports.



In the longer term, however, Iran needs to solve its problems with the United States to realize its energy potential. Iran’s energy sector needs more foreign technology to boost oil and gas production capacity. Otherwise it will lose its regional and global market share.



Considering that Iran’s oil buyers are finding alternatives to Iranian oil, it seems that Iran may have a hard time recapturing its share in the oil market because of uncertainty about US sanctions. Energy diplomacy needs to be redefined and the role of energy in Iran’s foreign policy needs to be reviewed. Indian private companies have good experience and enough financial resources to contribute to the Iranian oil sector, but Iran must first resolve its disputes with the United States and improve its legal framework for foreign investment.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, currently serving as a visiting research scholar in the Schar School of Policy and Government at George Mason University. Omid is a PhD Candidate in international relations at Yalova University, Turkey. Follow him on Twitter: @ushukrik.

www.atlanticcouncil.org

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US sanctions and the future of Turkish-Iranian energy ties

April 17, 2019

On paper, Turkey and Iran should be natural partners when it comes to energy. On the one hand, Turkey has a growing demand for oil and gas and lacks significant domestic resources, making it highly reliant on imports. On the other hand, Iran has huge hydrocarbons reserves — the world’s fourth largest for oil and second largest for gas, according to the U.S. Energy Information Administration. In reality though, things are more complicated. Energy relations between the two countries are not without their challenges, foremost among which are U.S. sanctions on Iran and disputes over pricing, although there is also a strong opportunity for greater cooperation in the form of Turkey’s efforts to become a regional energy hub.

At present, Iran is one of Turkey’s leading suppliers of oil and gas. According to figures from the Turkish Energy Market Regulatory Authority (EMRA), as of January 2019, Iran was Turkey’s third-largest source of oil imports by volume, accounting for 12.35 percent of the total, behind Iraq (23.5 percent) and Russia (15 percent). It was also Turkey’s second-largest supplier of natural gas, accounting for just over 14 percent of the total, behind Russia (31.6 percent) and narrowly ahead of Azerbaijan (13.9 percent) and Algeria (12 percent).

U.S. sanctions
The reimposition of U.S. sanctions on Iran in October 2018 has presented an immediate and obvious hurdle to Turkish-Iranian energy ties. In the aftermath of the U.S. move, Turkey’s purchases of Iranian crude oil reportedly fell to zero, according to news reports. Since then, however, they have picked up again. Turkey was one of eight countries that received a temporary sanctions waiver enabling it to continue buying Iranian crude for a limited period of time, on the condition that it work to reduce its imports of Iranian oil and find alternative suppliers. The waivers are currently set to expire in May, and it is unclear as yet if the Trump administration will extend them. Nevertheless, the trend when it comes to oil imports from Iran is clearly downward: According to figures from EMRA, they fell by nearly half from January 2018 to January 2019, from 22 percent of total imports to 12.35 percent.

Pricing dispute
Pricing has long been a bone of contention between Turkey and Iran when it comes to energy. Under a 25-year agreement signed in 2001, Iran exports 10 billion cubic meters of gas annually to Turkey at a price of $507 per thousand cubic meters. Turkey first objected to Iran’s prices in 2009, when it said they were too expensive and demanded a discount. Soon after, an arbitration court granted Turkey a 12.5 percent discount on the original price. In 2012 Turkey took action against Iran again, suing it for overpricing on gas sales, and in 2016 the International Court of Arbitration (ICA) ruled against Iran in its dispute with Turkey. After reviewing the case, the ICA ordered Iran to reduce its gas prices by 13.3% by the end of 2016 and pay $1.9 billion in compensation to Turkey due to overpricing.

Iran’s gas prices are indeed much higher than those of its competitors, Azerbaijan and Russia, making it unlikely that Iran will be able to maintain its share of Turkey’s energy market unless it takes action. The current natural gas contract between the two countries is set to expire in 2026, and Turkey is planning to construct infrastructure to boost imports from Azerbaijan and Russia in regions of the country that primarily consume Iranian gas at present. Considering these factors, if Iran wants to maintain its role as a key natural gas exporter to Turkey and extend the existing contract past 2026, it will need to offer additional discounts or other incentives.

Turkey’s efforts to become a regional energy hub
One major potential opportunity for closer cooperation is Turkey’s ambitions of becoming a regional energy hub, leveraging the country’s geography and pipeline network to serve as an energy corridor between the oil-and-gas-rich states of Central Asia and the Middle East and the major consumer countries in Europe. If Turkey can put in place the required infrastructure and liberalize its energy market, this goal may be achievable, and energy imports from Iran could help it to realize this objective.

In line with its broader aim of becoming a regional energy hub, Turkey is working to diversify its oil and gas supplies as a central part of its energy policy. At present, the country is planning to import more natural gas through projects such as Turk Stream, an undersea gas pipeline running from Russia to Turkey. Liquefied natural gas (LNG), primarily from Qatar and the U.S., is also playing a growing role in the Turkish energy market. Imports from the latter jumped from nothing to nearly 8 percent of the total in just one year, from January 2018 to January 2019, according to figures from EMRA.

In theory, Iran could play a greater role here as well, but boosting the volume of Iranian gas exports to sell on to other countries would not be easy. Iran needs foreign technology and financing to increase its production, but due to U.S. sanctions neither is likely to be forthcoming until Iran can solve its problems with the West over its nuclear program, missile tests, and human right issues. In addition to addressing its geopolitical problems, Iran also needs a legal framework that would help to attract foreign investment. Without foreign energy firms and foreign capital, Iran will be not be able to produce more oil and gas for export. It will also need to address the issue of reliability, which has long been a problem with Iranian gas exports. If the country is to play a greater role as a supplier, it needs to guarantee that it will not cut the flow of gas, especially in wintertime.

Despite their proximity and complementarity as producer and consumer, Iran and Turkey face considerable, if not insurmountable, hurdles to closer cooperation on energy. If they can manage to overcome the challenges associated with U.S. sanctions and pricing and leverage the opportunities presented by Turkish efforts to become a regional energy hub, the two may well be able to finally make the most of what should be a natural partnership.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, currently serving as a visiting research scholar in the Schar School of Policy and Government at George Mason University. Omid is a PhD candidate in international relations at Yalova University, Turkey. The views he expresses are strictly his own.

www.mei.edu

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Sanctions Against Iran and Venezuela Made US Leader in Oil Production – Expert

According to JODI [Joint Organisations Data Initiative], for eleven months now the United States has been the world leader in terms of monthly oil production. According to the organisation, in January 2019, Saudi Arabia’s production amounted to 10.243 million barrels per day.

At the same time, US oil production in January was 11.881 million barrels a day compared to 11.849 million barrels per day in December 2018.

Speaking to Sputnik, Omid Shokri Kalehsar, a Washington-based Iranian independent energy security expert, noted that oil sanctions against Iran and Venezuela will allow the US to appropriate these countries’ share of the world market:

“As a result of the shale revolution, the United States, who had previously imported oil, was able to become self-sustaining in the field of energy, as well as to become one of the largest gas and LNG [liquefied natural gas] suppliers both to neighbouring countries and to its allies, primarily in Europe. The US uses energy exports as a driver in their relations with other countries, and together with the use of such a tool as sanctions, this factor has become decisive in shaping US foreign policy”, the expert said.

Mr Kalehsar also noted that the US has repeatedly imposed sanctions against Iran with the most recent ones being imposed on 4 November 2018 and leading to a significant reduction in Iranian exports.

“If the US continues their sanctions policy and if the exemption from sanctions granted to eight countries that import Iranian oil is not extended in May, Iran’s oil exports are likely to decline even more”, the energy security expert told Sputnik.

Speaking about the policy’s objectives, Omid Shukri Kalehsar said that the United States has become one of the largest oil producers, and oil sanctions against Iran and Venezuela will allow them to appropriate these countries’ share of the world market.

According to the expert, this applies not only to the United States, but also to other oil-producing countries, including members and non-members of OPEC.

“If Iran and Venezuela keep oil production and exports at the same level, no one can take their place; therefore, sanctions against Iran and Venezuela benefit not only the United States, but also OPEC”, Kalehsar concluded.

The views expressed in this article are solely those of Omid Shokri Kalehsar and do not necessarily reflect the official position of Sputnik.
https://sputniknews.com

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Iran’s Petrochemical Industry During the Sanctions Era

The sanctions against the Iranian energy industry since the Iranian revolution not only reduced Iran’s oil and gas production capacity but also made Iran unable to use its potential in the petrochemical industry. Due to sanctions, Iran could not play an important role in the petrochemical market. The use of massive gas resources as cheap feedstock is one of Iran’s best potential methods for producing low-cost petrochemical products. The use of huge Iranian gas resources and the conversion of these capacities to petrochemicals is an important alternative to prevent raw materials and cheap energy sources, although it is not easy to use all existing petrochemical capacities in the context of the recent U.S. sanctions against Iran.

Utilizing the potential of petrochemicals will allow Iran to increase its non-food exports and consequently increase its government currency resources. The value of this industry is estimated to be between $14 billion to $16 billion, which is expected to increase to $50 billion if the sixth plan is fully realized.

In the vision of Iran’s 20-year development plan, the petrochemical industry should become the first-generation power sector in terms of the value of petrochemicals, and the production capacity of petrochemicals will reach $180 million by 2025. Another important objective outlined in the outlook document is to replace the export of oil, gas and petrochemicals instead of exporting crude oil and natural gas, and supporting and strengthening the production chain. Given that according to law, the government is not allowed to invest in petrochemical projects, it must prepare the conditions for the more active participation of the private sector in this field.

Selling products as petrochemicals is another problem in the sanctions period, as foreign partners in petrochemicals will be struggling to work with Iran because they are afraid of U.S. sanctions against their companies, and, of course, production and sales in the petrochemical sector. It will be difficult to imagine the sale stage, if left behind, the import of currency to the country itself has problems, and with this, naturally, the money in petrochemical will remain in the accounts of foreigners. This money should be pumped into petrochemicals at the time of sanctions to cover current costs, such as purchasing feeds that are essential for production.

Studies show that, despite positive measures and significant achievements in the country’s petrochemical industry, there are still weak points that need to be considered and addressed to achieve the desired goals of the documents and laws related to this industry. Policies and laws related to the petrochemical industry of the country emphasize the role of this industry in increasing the value of the oil and gas industry chain, counteracting the vulnerability of oil and gas exports, and the production and export of final petrochemical products.

The Downside

According to forecasts, to reach the target at the end of the sixth program, the value chain of downstream industries and the production of high added value products in the petrochemical industry should be formed. But, as was expected, the new sanctions imposed by the new U.S. led to the industry’s decline. Companies with high technology and modern technology, as well as with adequate financial resources, did not want to invest in Iran’s petrochemical industry. One of Iran’s policies to find a bigger share in the world’s petrochemicals market is diversification into the creation of products that will enable Iran to operate in multiple markets and have a more active presence. The development of petrochemical downstream industries will prevent the value chain from completing with crude oil.

After the Joint Comprehensive Plan of Action (JCPOA), Iran hoped to attract more than $100 billion of foreign capital to restore and increase its oil and gas production capacity as well as increase the capacity of producing petrochemicals. Given that some of the active units of the petrochemical industry of Iran are 40 years old and the renovation of these units was among the priorities of Iran, Iran failed to absorb the capital and technology needed to modernize these units. Iranian companies have good potential in the field of petrochemical, but the main problem is the use of rival companies such as the subsidiary of the tactics and foreign capital.

Sabic Saudi Arabia, the largest Middle Eastern petrochemical company and one of the five largest petrochemical companies in the world, also has the necessary support from the Saudi government, and with the

use of advanced technology from American companies active in Saudi petrochemicals, it has been able to keep its share in the regional and global market. While the company is deprived of huge gas resources such as Iran, the use of the latest technology from foreign companies and the newness of its petrochemical plant has made it possible for the country to sell petrochemicals at cheap prices.

During the last sanctions, petrochemical companies faced two major problems: First, exports of petrochemical products decreased significantly, and second, due to financial and banking sanctions and Iran’s lack of use of the Swift system, petrochemical companies could not export their goods to Iran, and they needed to them to provide part of the export currency to the importers of goods. Today’s petrochemical companies are facing a lot of problems, with feed and supply rates being one of the key and significant issues. On the other hand, petrochemicals have not been able to capture the satisfaction of domestic customers – downstream industries. The price of gas feed in the past year was more than 300 percent. Additionally, the price of various types of services increased from 50 to 300 percent. As a result, the price of gas feed to petrochemical units in Iran is more expensive than all countries of the Persian Gulf. In petrochemicals in this area the main competitor is Iranian petrochemicals. Iran’s petrochemical industry, due to its vast resources of energy and access to adequate and cheap fuel, has quickaccess to global and regional markets, and there is potential for Iran’s petrochemicals to be widespread among foreign investors.

Inadequate Supply

In recent years, most petrochemicals have not been able to capture the satisfaction of the domestic customers, that is, downstream industries. These factors, along with the impact of sanctions, will make it hard to work for petrochemicals. With the high consumption of natural gas in Iran and the lack of attracting foreign capital in the Iranian oil and gas industry, Iran will not be able to achieve its goals of increasing the production of petrochemical products. The withdrawal of Total and CNPC from Phase 11 of South Pars showed that as long as the sanctions are in place, large companies in the energy industry of Iran will not be able to function and Iran will have to use the capital and technology of domestic companies. But how Iranian companies with limited capital and technology can meet Iran’s petrochemical needs is a question. The burnout of major petrochemical units is also an issue that should be addressed by the authorities of the Ministry of Petroleum. The dumping of Saudi petrochemical products in the petrochemical market is another problem for Iran’s petrochemical industry.

In the opinion of the petrochemical industry, it is necessary to open new markets for Iranian products at any cost. Due to the high level of production of petrochemical products and its diversified and low prices, Iran can bring important markets around the world, provided it does not go to producers with domestic laws and regulations.

Exports to EU Market

Iran exported $2.5 billion in petrochemical products to the EU market in the years prior to the last sanctions, but this became a problem with the start of sanctions and hence almost stopped. After the signing of the agreement, Iran’s exports to European countries were resumed and, on the other hand, facilitating the import of needed technology and catalysts into the country in the event of bank transfers going on normally. Petrochemical experts say past concerns in the field of petrochemicals have now fallen sharply, and even if America puts Europe out of reach, we are not worried about the situation.

Analysts believe that in the past, all financial transactions between Iran and other countries had been difficult and practically disrupted the trading system of the country, and petrochemical companies were unable to export their products to the country due to these sanctions. At that time, exporting companies could not enter their currency and provide it to importers or use it to purchase the equipment they needed.

In general, it should be noted that sanctions on Iran’s petrochemical industry included four main sectors: Sanctions on the export of products, sanctions on petrochemical products exports, technological sanctions and technical knowledge, and, finally, sanctions on the petrochemical industries. Of course, the United States has nothing to do with Iran in any of these areas, but the main concern is the sanctions imposed on European and Asian companies.

dailysabah.com

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Iran-Gulf Energy Relations in the Time of Trump Sanctions

Analysis: Iran could easily export cheap gas to GCC nations, but only if it improves political relations with arch-enemy Saudi Arabia,

Over the past two years, Iran has bolstered its relations with several Arab countries as the Gulf crisis has deepened.

While the Gulf Cooperation Council [GCC] has in the past tried to present a unified, timely and relevant response to regional developments, these attempts are sometimes individualised by the actions of a member nation.

Iran’s relationship with every member of the GCC is different. Oman, the closest country to Iran among GCC members, maintains its warm political relationship with Tehran in a relatively predictable direction.

Iran-Oman relations faced few challenges either before or after the 1979 revolution. Oman’s policy of establishing close and positive relations with Iran, and a constant emphasis on the development of relations in all political, economic and cultural fields, has led Tehran and Muscat to recognise each other as strategic partners in the Middle East.

Oman also played a mediation role in Iran’s nuclear talks with the P5+1 countries and hosted several rounds of dialogue between Iranian and US foreign ministers.

Tensions between Iran and Saudi Arabia, meanwhile, have built steadily during the Hassan Rouhani era. They have mutually exclusive interests in Syria, Iraq and Yemen. The attack on Saudi diplomatic sites in Tehran and Mashhad also enflamed tensions more than ever.

In Iraq, since the fall of Saddam, Iran’s influence has grown significantly. Along with Iran’s allies in Lebanon, Syria and Yemen, Tehran’s regional expansionism has grown and alarmed Riyadh, which is fearful that growing Iranian influence comes at the expense of its own regional power.

Saudi Arabia has used the current tranche of US sanctions against Iran to produce more oil and take Tehran’s share of the world market. Riyadh is also trying to use its investments in major buyers of Iranian oil, such as India, to persuade them to reduce Iran’s role in their energy markets.

The GCC has always viewed the Islamic Republic of Iran as a fundamental threat to its existence, and from the outset, has taken a hostile attitude towards Iran.

Meanwhile, facing the collapse of the nuclear deal and the new sanctions, Iranian officials have declared they are “ready and interested” to develop bilateral relations with Iran’s neighbours, mainly the GCC.

 

Leveraging energy resources 

Iran’s geopolitical importance is in no small way connected to the existence of huge energy reserves, drawing the attention of global powers to the region. This, along with the strategies of other regional and global powers, largely shapes the foreign policy of the Islamic Republic.

Iran’s main objective is to promote its regional status – and the biggest obstacle to achieving this is the strong US military presence in the region.

Regionalism as a main factor in Iranian foreign policy gives an opportunity for Iran to expand relations with the GCC. Iran, with huge oil and gas reserves, can be an energy supplier (mainly of natural gas) to some GCC members such as Oman, the UAE and Kuwait.

Given the fact that the Gulf countries are Iran’s top priority for gas exports, after negotiations with Oman, there is now the possibility of adding Kuwait to Iran’s list of gas customers.

Ali Reza Kamali, the former CEO of Iran’s Gas Export Company, said the current survey of Iran’s first gas exports showed it would only require the construction of a 200 kilometre pipeline to reach the markets of Oman, Kuwait, the UAE, Saudi Arabia, Bahrain and Iraq.

While in recent years these countries have been believed to have little need for oil imports, they have little in the way of gas – except for from Iran.

If Iran does increase its gas production capacity, there is a possibility of export to the Gulf. Although initial talks for Iranian gas exports to Kuwait have not yet been finalised, the operation of the Iranian gas pipeline to Iraq could provide the foundations for the necessary physical infrastructure to provide gas onwards to Kuwait.

This means the technology and personnel to export gas through Iraq to Kuwait is largely already in place, and this programme could become operational not long after a contract is signed.

Although countries such as Iraq, Saudi Arabia, Kuwait and the UAE do have gas resources, these consist mainly of gas with oil, and they do not have independent gas reserves. These countries are also focused on oil production.

Hamidreza Aragi, the director of Iran’s National Gas Company said that if gas contracts between Iran and neighbouring countries were signed, the security of the countries of the region would be tightly linked.

In terms of economics, politics, population, history of the formation and influence of Saudi Arabia in the Arab world, Saudi Arabia has long sought to expand its influence within the GCC as its most important member.

To enter a new era in Iran’s relations with the Council, both sides would need to be able to shift their concerns towards tangible diplomatic achievements. Iran has also to be more active in foreign diplomacy in order to eliminate problems with its neighbours.

 

To enter a new era in Iran’s relations with the Council, both sides would need ti  be able to shift their concerns towards tangible diplomatic achievements

 

Iran still has huge potential in the petrochemical sector, and exporting more petrochemicals may provide an alternative to exporting LNG while oversupply lowers the value of the LNG market.

Recent political tensions in the region have affected natural gas agreements with Iran’s neighbours, with energy experts believing political tensions between Iran and Saudi Arabia have an overall negative effect on Iran’s ability to conduct business over natural gas agreements with other Arab nations.

Iran enjoys good political and economic relations with Oman; however, foreign factors have delayed the project of Iranian-Omani natural gas pipeline at the planning phase.

Iran should try to reduce tensions with Saudi Arabia to a manageable level, as the relations between Iran and the Gulf Cooperation Council depend on Iran’s relations with Riyadh.

History has shown that ties between the Gulf Cooperation Council and Iran have improved as relations between Iran and Saudi Arabia improve.

/www.alaraby.co.uk

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What do Middle East Energy Markets Hold in Store for 2019?

 

In 2018, the oil market showed great instability, with no apparent balance between supply and demand.

One of the main factors influencing oil prices may be regional political developments, given that the Middle East supplies 70 percent of the world’s oil. In 2018, geopolitical tensions, financial developments, and supply-and-demand triggered a change in the price of oil on the global market, while US President Donald Trump’s tweets also sparked a tense atmosphere.

 

But 2019 is expected to see further fluctuations in the oil market. In recent months, OPEC members have not been able to reach lasting agreement, despite long days of talks, so let’s take a look at the economic situation of major producers – Saudi Arabia, Iran and Iraq.

The latest IMF report explores the developments in the oil market, saying that the economic outlook for oil-exporting countries is largely dependent on the “uncertain future” of oil prices.

The United States has meanwhile unilaterally imposed sanctions on Iran and predicted such measures would “potentially reduce Iranian oil production and exports dramatically for at least the next two years”.

The IMF predicts oil prices will continue to rise to $60 a barrel by 2023. The Organization of Petroleum Exporting Countries (OPEC) and its allies, which account for 55 percent of world oil production, have faced a challenge in their role stabilising the oil market. Saudi Arabia, which has a significant surplus capacity, could not implement the necessary production reductions to maintain oil prices at $70 per barrel.

 

Most OPEC members benefit from oil prices between $70 and $90 – enough to cover domestic budgets, but not so high as to drive investment in alternative fuel sources and technologies, especially renewable energy and electric vehicles.

 

What will happen in Middle East energy markets in 2019? What affect will any price rise/fall have on ordinary people and on regimes?


Iran

One of Tehran’s principal development goals is to achieve a production capacity of 5.7 million barrels of crude oil and gas liquids per day, with a production capacity of more than one billion and 300 million cubic metres of natural gas per day.

 

Exports of Iranian crude oil and gas condensate in the past round of sanctions under the former US administration dropped by about 1.2 million barrels per day over two years, but this did not have a significant impact on oil prices, as the world was facing a surplus of oil supplies between 2014 and 2016.

One of the most important factors in pricing is the state of market equilibrium in terms of the possibility of substituting oil from the market due to sanctions, oil prices and geopolitical factors. Since the reintroduction of US sanctions, Iran’s oil exports have fallen.

Although the export figures for Iranian oil are not officially announced, according to estimates from various sources, during the months of August and September 2018 Iran’s export of crude oil and gas condensates declined between 300 and 600 thousand barrels per day. According to estimates from secondary sources, in the same time, Iran’s crude oil production fell by about 450,000 barrels per day.

 

The US government initially announced that it would attempt to reduce Iran’s oil exports to zero by November 4, 2018, but eventually it was forced to exempt eight countries that imported oil from Iran.

However, there is likely to be a market surplus this year, and Iran’s oil exports will certainly be affected. But, if oil prices continue to decline, the likelihood of a drop in supply from OPEC and non-OPEC producers is high.

 

Iran under sanctions is unable to play an important role in the global oil market and cannot produce or export more oil.

Any increase in the oil price is therefore in favour of Iran. Iran had been producing about 2.5 mbpd in recent months but was expected to drop to about 1 mbpd when January 2019 figures are more fully estimated.

By October 2018, Iran had begun to sell oil in energy exchanges within the private sector to sell more on the regional market. But energy exchanges have not been as successful as expected, and Iranian oil exports will not increase. Since domestic production is in short supply, the export of goods is not affected by the exchange rate – which has a more visible and noticeable effect on Iran’s imports, as all four of Iran’s main economic sectors, agriculture, industry, oil and services, import capital goods, and intermediaries are dependent on the outside world – so rising oil prices can lead to lower prices for domestic products, or falling oil prices lead to higher prices for domestic products.

 

Saudi Arabia



For decades, Saudi Arabia has traditionally played the role of swing producer in the oil market; a producer with enough spare capacity that can quickly change its oil production at no extra cost. But for a long time, Saudi Arabia has not played such a role: the rise in US oil production, along with a host of other factors, has led to a surplus of demand for the oil market, and as a result, oil prices have fallen.

OPEC’s expectation was to cut oil production to increase prices. At OPEC’s annual meetings, Iran, and most OPEC countries, made the same request, while Saudi Arabia and its allies offered another target that was not so wrong: protecting market share.

In October 2014, Saudi Arabia took a different policy towards the oil market and refused to reduce its crude oil production in line with maintaining oil prices, which initially caused great damage to the country’s economy.

 

Saudi Arabia has spent billions of dollars of its own money in order to maintain its share in the global oil market, as well as to force OPEC member and non-member countries to reduce oil production. Speculation about the fall of oil was ripe during this period: Did Saudi Arabia target Iran and Russia, or plan to reduce oil production from unconventional shale, or was there some other story?


Iraq

The proposed $111.9 billion budget, sent to the Iraqi parliament in October, estimated the export of crude oil at 3.8 million barrels per day at $56 per barrel. The proposed budget will increase spending by 23 percent and a deficit of $ 22.8 billion.

This budget will not cover the country’s reconstruction after many years of war, with about 1.8 million people still yet to return to their homes. Part of Mosul, Iraq’s second city, has been destroyed, like many other cities and villages that were in the hands of IS.

 

The Iraqi Ministry of Planning estimates that the country needs about $88 billion to rebuild. In February 2018, donors at the Kuwait Summit promised $30 billion in loans and investment assistance to fund a portion of this budget, but little progress was made. Meanwhile, protests, unemployment and public service disruption have plagued , the southern resource-rich region in recent months.

The interruption of electricity is also a national problem in Iraq and in the south, drinking water is unclean.

The Iraqis chose their new government in early 2018, but the government is influenced by political factions similar to those that have run the country over the past 15 years. Legislators have rejected the draft budget and are demanding a new budget based on an estimate of the level of oil price closure, and more allocated funding for public investment.

While global attention is focused on the destruction caused the wars in northern and western Iraq and protests in the south, the budget crisis is also a major concern for Iraqis living in more stable regions.

 

Half-finished construction projects have remained at a standstill all over Baghdad for years. But after the government declared war on IS, the general budget fell. When oil prices recovered in 2017, the government began to pay instalments on construction mega-projects, but only for those that were mostly completed.

Payments are once again waiting for the outcome of budgetary negotiations. The attempt to diversify the economy has been halted by the rise of domestic political conflicts and corruption, as well as war and instability.

“Our destiny depends on oil. When the [price] goes down, our blood pressure will rise,” said one Iraqi analyst.

During the most recent period of sanctions, Kirkuk oil – along with Russian oil – became an alternative to Iranian oil because of a similar chemical profile. In 2019, Kirkuk oil’s share in Iraq oil exports is likely to increase – and this will not be good news for Iran.

As the global oil market simultaneously sees an increase in Russian, American and Saudi oil production, as well as the maintenance of the quota of Iranian oil with a slight decrease in the market, the world’s oil production rate has  surpassed demand and has become one of the factors behind the fall in commodity prices.
Major oil producers will be hit by declining prices because most of the revenue of these nations comes from oil. Iran under sanctions will unable to sell more, but if prices are to rise, Iran’s damaged economy would stand to benefit.

The US decision to grant exemptions to some of Iran’s oil buyers changed the market dynamics that were already under pressure from three major manufacturers: the US, Russia and Saudi Arabia.

Non-OPEC oil production could yet increase from 1.5 to 2.2 million barrels per day in 2019, with shale being behind the rise. The sharp rise in US production will be a major hindrance to rising oil prices in 2019.

Oil demand will grow between 0.9 and 1.5 million barrels per day in 2019. This figure was between 1.1 to 1.5 million barrels per day in November’s poll. In terms of demand, the main factor is the question of how far economic growth will slow in 2019 and how much lower the demand for oil will be in the coming year.
The IMF expects to see oil prices rising in 2019, which could improve the economic conditions of the Gulf states. Given the trade and economic constraints with Tehran, the economies of Iran’s neighbours will not be subject to a re-imposition of sanctions. Oil-related sanctions against Iran do not make good business sense for foreign companies looking to make investments, and this will make the economic situation worse for Iran.

The worrying global economic downturn has furthered the negative impact of a surplus supply. China’s and India’s oil imports have not yet been enough to offset consumption in other developing countries.

Although the shale gas revolution has serious potential for increased production, and Russia has voluntarily reduced its quota over the past few years by cooperating with OPEC, now Moscow is also seeking to increase production.

 

However, Saudi Arabia, as the third actor in the triangle of production increases, can not, in the long run, increase production beyond its capacity, because its ability to produce a glut of oil is dependent on the Iranian oil industry failing.

Perhaps Moscow and Washington could make headway in this situation for a while, but in Riyadh that potential is basically absent. Of course, it also should be noted that although the global oil market is likely to contract as prices fall, Moscow also must slow its domestic revenues to increase its income – but this cannot be predicted within a specific time frame.

 

www.alaraby.co.uk/

 

 

 

 

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The Consequences Of U.S. Sanctions For Iran’s Oil Industry

Iran’s energy sector has often been the target of US-led sanctions, particularly in response to the perceived risk of a nuclear weapons program. However, after a brief thaw in relations and the lifting of certain restrictions, the United States imposed a new set of measures against Iran’s oil export industry in November 2018.

In October 2016, the peak of its crude oil exports, Iran was selling 2.44 million barrels a day. In 2017, Iran exports fell to 2.1 million barrels per day, earning revenues of around $40.4 billion. By September 2018, that number had dropped to 1.7 million barrels per day. U.S. policy makers are determined to drive Iran’s oil exports to zero and run Iran’s finances to the ground. Iran, meanwhile, needs to prevent its oil exports from falling below a million barrels per day. At the same time, it is hoping that the lack of supply in the market will increase prices as much as possible to allow for a natural balancing out.

A decrease in energy exports will certainly hurt Iran’s economy, and the government will likely struggle to mitigate the effects on ordinary life. Meanwhile, the United States will increase its own share of the global energy market, boosting its exports of liquefied natural gas to countries such as India and Turkey who would otherwise rely on Iran’s vast and near-by supply.

To continue exporting even at its diminished rate, Iran needs to attract capital and technology. Officials at the Ministry of Petroleum have frankly admitted that they need large amounts of capital to develop and maintain oil and gas fields or else Iran will fall well short of the goals of its sixth development plan. Iran hopes to reduce the national budget’s dependence on oil and gain a capacity of at least 4.7 million barrels, with 1.3 billion cubic meters of natural gas and gas condensate reaching 1.1 million barrels a day.

Iran requires around $100 billion in foreign investment for its oil, gas, and petrochemical sector. Most of Iran’s oil wells are in the second half of their lives, with eight percent of oil production dropping automatically each year. The country needs technology and capital from foreign countries in order to maintain, let alone increase, its oil efficiency. Once new sanctions are in place that target companies interested in investing in Iran, there will be even fewer possibilities for foreign investment. Furthermore, the ban on dollar deals with Iran raises the fear among financial institutions that they will feel the wrath of the Treasury Department.

Most technology-rich countries are interested in the investment opportunities the Iranian energy sector affords, from expanding oil wells to developing oil and gas technologies and petrochemical products. If geopolitics were not an issue, Iran would have many ready buyers for its energy. But Iran currently accounts for less than one percent of world trade in gas, despite its massive reserves.

However, every effort to revive the production capacity of oilfields requires high technology and foreign investment. Iran has signed a deal with the Russian company Zarubezhneft for the redevelopment of the Aban fields. It has also planned to sign contracts with Pertamina, an Indonesian state-run oil company, to operate the Mansouri oil field.

U.S. waivers to eight major Iranian oil importers provide the country with an opportunity to keep its share of the regional oil market for a limited time. However, it is inevitable that most of these countries will reduce oil imports from Iran in the first months of 2019, as all major Iranian oil buyers are looking to find alternatives for their supplies. U.S. sanctions present a steep risk to foreign firms otherwise looking to invest in Iran for they might be deprived of the technical cooperation of American companies and the financial resources of U.S. agencies and the U.S. government.

The U.S. withdrawal from the nuclear accord will undoubtedly hold the Iranian energy industry back from achieving its goals in terms of foreign investment and technology. After the re-imposition of sanctions, only Russian companies seem ready to continue work. Last year, the contract for the development of Aban and Persia Fields was signed with Zarubezhneft, but the Russian company has reportedly walked away from the deal. As recently as last month, meanwhile, Lukoil discussed further investment.

Russian companies are also investing in fields that—critically—provide no threat to Russia’s own energy goals. However, once Russian and Chinese companies begin playing an active role in oil and gas activities in Iran, questions regarding the nature and duration of contracts, and the technology used, will come to the fore—provided that these companies, too, succeed in withstanding U.S. diplomatic pressure.

 

https://lobelog.com

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Iran’s Energy Exchange: What’s the Risk?

More than 18 years since Iran’s Energy Exchange scheme, in which the Iranian Oil Ministry sells resources to its private sector for export, several Gulf states have begun trading oil through the capital market in a similar fashion, yet Iran lags behind. Since US sanctions against the Iranian energy sector were launched, the Iranian government has sought more creative ways of maintaining a stake in regional and global energy market to mitigate the economic fallout of its confrontation with the United States. This is how the Energy Commission of the Islamic Consultative Assembly arrived at the idea of creating an oil stock exchange to encourage the private sector to continue activities with Iran.

Delivering on its Promises

During the Obama Administration, Iran used the concept of energy exchanges to maintain its share in oil market and increased foreign exchange earnings. However, this led to the country missing out on finances thanks to a spat of pay disputes.

 

The Energy Exchange scheme holds many benefits to the country, namely mitigation of sanctions and transparency in the sale of oil. By implementing this law, the government was able to create a new market for domestic oil sales with the help of the private sector as well as other existing capacities in the country to sell oil to traditional foreign customers. Maximum use of formal market power, price flexibility and compliance with supply and demand conditions have led Iran to export Iranian crude oil on the energy exchange, which is an important signal for maintaining Iran’s export position in global markets. This experience demonstrates Iran’s ability to maintain export markets and the variety of terms of sale despite restrictions – provided that price flexibility is made on a formal and transparent market. What is important in this regard should be the importance of the proposed price in the export markets, which is that buyers are still ready to buy crude oil from Iran, and with the flexibility of the export market of the Energy Exchange, the volume of export of crude oil from this platform can even be intensified.

 

Special discounts offered to buyers such as India have constituted another strategy to keep Iran’s share in various markets alongside other strategies such as personally taking on tanker insurance to transit oil shipments to consumers.

Iran’s Oil Targets

Whether the targeting of a daily supply of one million barrels of oil in the energy market is to be achieved, here are two aspects of both domestic and foreign that it seems that it is now possible to process and transform it into domestic products and raw materials for export  However, it should be noted that there is no high technology capability in Iran, and most of the government should increase the processing capacity by supporting investment in small refineries.

 

The supply of crude oil and petroleum products through the stock exchange and the provision of the presence of foreign refineries and buyers of these products can, in addition to increasing the number of contributors, improve the conditions and stability of the sale of oil and petroleum products in the country. Accordingly, the identification and analysis of target markets for the experts in the energy sector of the country is facilitated and planning for the development of petroleum products and its products is more confident.

Determining the bottom line

The price of oil in the energy market should be determined by the supply and demand mechanism of the market, and the change in this pricing method in terms of bureaucracy has created a lot of ambiguity regarding the pricing of oil in the energy bourse. Still, there seems to be hopes for the establishment of a stock exchange after 17 years through the Energy Exchange, and even under the influence of these hopes, some foreign investors have begun trading deals and are awaiting the start of oil deals.

 

During the last bout sanctions, one of the obstacles to physical supply came in regard to the exchange of currency. The Ministry of Petroleum will offer its main products at the Export Exchanges of Energy Exchange; however, the problem has so far been the discussion of currency transfers. Previously, crude oil was supplied to the domestic refineries on the Energy Exchange.

 

Accordingly, Ali Adiani, a member of Parliamentary Energy Commission, claims that the small amount of crude oil supplied to the stock market in 2012 was a failure due to the lack of capacity building for the private sector. However, now with the establishment of consortium, he believes good oil stocks can be made. .

“Over the years, we have been faced with an internal resistance to supplying oil on the energy exchange, because there were few interests associated with the transparency of the supply of oil. However, now the Ministry of Petroleum, Economics, and the Bourdard Stock Exchange are working hard to achieve results.”

Foreign Investment

 

It should be noted that foreign companies are also invited to purchase oil in Iran’s energy exchanges. Iran needs to create a competitive mechanism for energy exchanges, by which foreign companies can pay for oil in Iran in order to be valued for Iran, but the supply mechanism would be such that ports or major refineries deliver oil to the private sector and are declared by vendors in ports at a specified price. The positive result of this mechanism would be to reduce pressure on the government and, given that the private sector is not sanctioned, help improve the circulation of capital in the sector by financing part of the demand. It is expected that neighboring countries will provide the foreign currency needed by Iran.

 

Other issues are on the horizon, however, such as the fact that different types of oil are based on various IPUs; the amount of sulfur, carbon and lead in the content, which countries are specialized in which products; price determinants, and others.

 

 

The government should have begun a process of transferring some of its activities to the private sector a year ago. As a first step, the government should distinguish between the real private sector and those who come in the name of the private sector, such as Babak Zanjani, and damage the country. Indeed, it is important to determine the ownership of consortia, and the government must trust them in the success of the private sector.

 

Many energy experts argue that if the Oil Ministry accepts to supply oil at lower prices, with the intention of taking the command and outside of the conventional supply and demand mechanism, the main function of the stock exchange will be questioned and should be considered a failed project. On the other hand, some oil industry experts say the supply of crude oil on the stock exchange should help the country’s oil exports. So, as long as there is a customer for crude oil on the global consumer markets and can be revenues for the country by selling oil at a price, why should it be offered to stock buyers at lower prices?

 

Iran is enthusiastic about the potential fruits of the project and hopes to use its energy exchange to bypass sanctions, but according to Managing Director of the Energy Exchange, pointing to the core issues of the Tehran Stock Exchange and speculation about the supply of crude oil on the stock exchange, asks “How do we want to create a new software system for oil futures?”

 

 

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Iranian-Indian Energy Relations Under Sanctions

Since it has huge oil and gas reserves and is geographically quite close, Iran is ideally placed to provide energy to India, and thus the country is Iran’s second largest oil market after China. Even at the height of the U.S. sanctions on Iran’s energy sector, India continued to import oil from the country. The relationship between Iran and India has expanded rapidly in recent years. After the 2015 nuclear deal, with the lifting of sanctions in various fields, especially energy, economic and commercial links between Iran and India expanded dramatically.

With new sanctions on the horizon, Iran provided significant discounts to Indian importers last summer. Thus, the volume of August imports was 56 percent higher than the previous August. So far, India is one of the countries exempted from secondary sanctions that the Trump administration is imposing on states doing business with Iran. But oil prices are expected to rise nevertheless, which will adversely affect India as the third largest oil importer in the world.

Although sanctions on banking prevented New Delhi from transferring money from the sale of oil to Iran in time, links were preserved thanks to strategies established during the previous round of sanctions. At that time, 55 percent of the proceeds from the sale of Iranian oil to India were deposited in euros and 45 percent in rupee in UCO Bank, an Indian financial institution, after which most of the money was transferred to Iran. This time around, UCO Bank is reluctant to serve as the conduit for funds, and India has opted to pay Iran in rupees through the Mumbai branch of an Iranian bank.

India has launched a major effort to invest in petrochemicals, chemical fertilizer, and the other upstream industries of its own oil industry. The country’s Oil and Gas Minister Dharmendra Pradhan has announced plans to invest $20 billion in Iranian oil and gas infrastructure. Iran, aiming to gain a competitive edge over other suppliers, has delivered oil at reduced prices to India, offered a longer period of credit to pay for oil purchases, and is transporting the oil almost for free. In addition, many Indian refineries are equipped to match Iranian refineries, so they cannot easily rely on other suppliers. Iran has also offered to cover the insurance for tankers that carry Iranian oil to India in lieu of an exemption from international financial institutions.

The port of Chabahar is the best, the closest, and the least costly route for Iran to reach global markets and promote the development of neighboring countries. India has committed to invest $500 million to develop Chabahar port. Iran and Afghanistan, meanwhile, want to establish an international freight corridor through this port, and several Indian wheat shipments have already gone to Afghanistan through Chabahar. New sanctions against Iran, however, threaten the success of the Chabahar project by not only preventing countries and companies from trading with Iran but also by threatening sanctions on financial institutions that engage with Iran. These sanctions will reduce the flow of capital and business to the port.

On November 7, the United States announced that it would waive sanctions on certain parts of the Chabahar port, along with the Chabahar-Afghanistan railway project and Iranian petroleum exports to Afghanistan. Since Islamabad is not allowing India to use Pakistani territory for direct business with Afghanistan, Chabahar is important for Indian access not only to Iran but to Afghanistan and beyond. The diversification of energy resources is a key pillar of Indian energy policy. If sanctions continue to punish the Iranian energy sector after the U.S. waivers expire, India will reduce oil imports from Iran and increase imports from Iraq and Saudi Arabia.

Indian oil imports from Iran were expected to grow by 31 percent year-on-year, reaching 500,000 barrels per day in the fiscal year beginning April 1, 2018. Iran understands India’s problems in dealing with an unpredictable energy market and will do everything it can to ensure the security of India’s energy supply. India’s relations with Iran are also complicated by the impasse over Indian investment into developing Iran’s Farzad B gas field.

China has been one of the strongest drivers of closer relations between Iran and India. An economic corridor between China and Pakistan and the former’s investments into the port of Gwadar is a common geopolitical challenge for both India and Iran. The economic corridor is designed to limit Indian operations in the western regions of the Indian Ocean and the Oman Sea. An expanded Gwadar port, meanwhile, undermines the potential of the Chabahar port and allows Pakistan to challenge its regional rival, India, in the area of Afghanistan.

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