Why did the US fail to zero Iran’s oil exports?
The reason is that the current sanctions rather than being economic are political. Furthermore, the imposer of sanctions is pursuing economic interests rather than political interests. Now, if its interests are served it will not insist on sanctions. Another issue is oil market oversupply including light crude oil to super heavy crude oil. When we look at the classification of crude oil we realize that undersupply is observed in the category of Iran’s crude oil, which is not easy to be supplanted.
If you review news you see that immediately after the US raised the issue of imposing sanctions on Iran’s oil, Saudi Arabia and Russia were said to be able to produce sufficient oil to make up for Iran’s future absence. However, those involved in oil trading were assured from the very beginning that such allegations were mere bluff. The reason is clear. Saudi Arabia is currently producing 10 mb/d of oil, mainly light, superlight and extra light crude oil, while its medium oil output stands at 1.8 mb/d. Therefore, it would not be able to replace Iran’s medium crude oil. What Saudi Arabia has said pertains to light crude oil. As far as Russia is concerned, I have to say that Russia’s Ural oil could never supplant that of Iran because it is lighter than Iran’s oil. Now, you can see that these two countries (Saudi Arabia and Russia) are not able to produce oil which is neither light nor heavy (medium oil). Russia and Saudi Arabia may be able to increase their medium crude oil production over one or two months and take over Iran’s place, but they will not be able to supply medium crude oil on a sustainable basis. That is why I’m saying that these sanctions are fragile.
Are you sure that the sanctions are fragile?
Yes, because we have already experienced sanctions. During the previous round of sanctions, they tried to exert pressure on the Ministry of Petroleum, thereby driving buyers of Iran’s oil to purchase synthetic crude oil instead of Iran’s oil. To that effect, they blended South American crude oil with Saudi Arabia’s light crude oil to produce what they claimed to be medium crude oil. But in light of the current circumstances in Venezuela, this country is not able to supply oil sustainably and therefore, one cannot count on this country’s production like before. Therefore, when you juxtapose all these issues you can see that this round of sanctions is fragile and they could not push Iran’s crude oil exports down to zero. I think even if these sanctions are serious, Iran’s oil exports will be still higher than the pre-JCPOA period. Under the tough UN Security Council sanctions, we were exporting 800,000 b/d of oil, while I think our oil exports would vary between 1.3 mb/d and 1.5 mb/d this time.
Last time 11 countries were granted sanctions waiver, while this time they are only 8. Do you still believe that the previous sanctions were tougher?
Yes, I reiterate what I said. Last time everything was well thought out and quotas had been determined for the buyers of Iran’s oil. For instance, it was said that the buyers had to reduce their oil purchase from Iran by 20% every six months. But this time no precise figure has been given. In my view, these sanctions are mainly US trade sanctions.
In light of the present conditions, is it not possible for the buyers of Iran’s crude oil to modify their refineries technically so as to use blended or light crude oil and replace Iran’s oil?
A number of issues are concerned here. First and foremost, modifying the basic design of refineries is not easy. Second, if the refineries apply such changes which direction should they take and how should they enhance their potential? They should either choose to process light crude oil or choose to treat heavier crude oil. Both will require big investment which is not lucrative for the refineries now. Another issue is secure oil supply. I don’t intend to speak highly of NIOC, but all refineries have acknowledged that NIOC has a good background in terms of secure oil supply. All refiners in contract with NIOC are well aware that the company never halted its oil supply even under the most difficult conditions and it always respected customers. After the implementation of the JCPOA we managed to take back our market share, although many could not believe it. But we did so because of our customers' confidence in NIOC. Another point is Iran's geopolitical position and proximity to oil shipment lanes, allowing refineries to get their oil from Iran anytime they want. For instance, India is near Iran and its refiners will naturally prefer to buy oil from Iran. For these reasons, I don't think that technical modification of the refineries would be possible to dispense the need for Iran's oil.
Nevertheless, some refiners stopped buying oil from Iran and the oil prices did not jump as they were expected and even declined.
We should not think that all refiners would obey US instructions and are protected by that country. They also take into account their own interests. However, we have to acknowledge the fact that the US represents a big market, which all countries are using. That plays well into US hands to press other nations to execute its orders. I remember well that during the previous round of sanctions, the Obama administration's secretary of state Hillary Clinton used to travel to Asia, particularly India, aboard a plane which was carrying American industrialists and refiners. She used to pressure Indian refiners by threatening to deny them catalysts. Economic pressure on nations helps the US reach its objectives. Under the present circumstances, it would be very important for us to withstand US pressure. There is no alternative to Iran's oil; otherwise it had already been replaced.
During the second half of the year, demand for oil declines and it would be more probable to make up for supply shortages. Does it mean Iran's oil export reduction?
It's natural for us to see demand fall in the summer, and therefore decline in exports is natural. But as I mentioned I don't think that Iran's oil exports would fall below 1.5 mb/d.
We have to be realistic. The US hostility with Iran is deep-rooted. Before the 1979 Islamic Revolution, nearly 65,000 Americans were administering all state affairs in Iran. After the Revolution they felt they had lost their regional island of stability. Therefore, their enmity and hostility against Iran is fundamental. We should also stop wishful thinking that with sanctions in effect everything is alright and nothing will happen. However, I reiterate that in this round of sanctions, the pressure on Iran is not as tight as it was (pre-JCPOA).
With the intensification of sanctions, how likely is it for Iran to sell its oil via dealers?
It's impossible. NIOC Directorate of International Affairs has always opposed the sales of Iran's oil via intermediary dealers. During the previous round of sanctions, the then administration (under Mahmoud Ahmadinejad) was pressing the Directorate to give oil to intermediaries to sell in a bid to maximize Iran's oil sales. I did not agree and I was dismissed (2009). I've always said that intermediaries cannot sell even a single barrel of Iran's oil. Were it not for NIOC Directorate of International Affairs' resistance, we would have dozens of so-called sanctions-busters [facing fraud charges]. I should also tell you that if the dealers are to sell Iran's oil, the buyers will get confused and once sanctions have been removed, it will not be clear what would happen in the market. Iran is currently selling its oil via NIOC and we have no dealers for that purpose.
Some news agencies like Reuters claimed that Russia would market Iran's oil due to US sanctions. Minister of Petroleum Bijan Zangeneh denied such allegations, but rumors are banded about. Has the International Directorate sold its oil via a third country?
That's not true at all. Of course some managers with political thoughts wrongly imagine that Russia could help Iran during time of sanctions. The Russians were expected to refine Iran's oil at their own refineries and then sell it on the market. But the point is that Russia has no possibility of processing crude oil. Another point is that even if Iran's oil is sent to Russia, it has a long distance to go (the Black Sea or the Baltic Sea), which would inflict heavy costs on Russian refiners. That is why major Russian refiners did not step in. Moreover, the Russians are exporting oil and it would be unreasonable to sell Iran's oil.
Amid attempts by some OPEC members to take Iran's share of oil market by supplying more oil and even considering reduced payments for their customers, is Iran using this tool for preserving the market or even giving oil for free to customers?
First of all, we give no free oil to any country, but we grant discount to some of our oil buyers, but not the discount normally referred to. The discount we grant to our customers is for competitive purposes. We take into account the issue of competitiveness when it comes to selling oil. If we decide to sell at high prices no buyer would purchase oil from us. But we do not sell our oil at very low prices. However, some countries like Iraq are increasing their output. Iraq is also granting discounts to its oil buyers in order to boost its market share.
Given your experience in selling Iran's oil, what's your proposal for Iran to withstand oil sanctions?
NIOC Directorate of International Affairs knows its job perfectly and knows what to do. We deliver oil to the buyers, but the issue is the transfer of oil money into Iran. I think that Iran's banking system needs to envisage a reliable system for money transfer because Iran's oil buyers consider us as a reliable supplier.