Asia is Purchasing Nearly all of Iran's Oil
Image Credit: Office of Iran's President

Asia is Purchasing Nearly all of Iran's Oil

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Four Asian countries are now purchasing nearly all of Iran’s oil exports according a report this week from the Economist’s Intelligence Unit (EIU).

“Almost all of Iran's oil exports now go to China, South Korea, Japan and India,” the report said even as it noted a sharp decline in the amount of oil each country purchased from Iran during 2012.

Iran’s oil exports have been cut in half as a result of U.S. and EU sanctions that were enacted last year to pressure Tehran into making concessions on its nuclear program, which the West believes is aimed at acquiring a nuclear weapons capability but Iran claims is intended solely for peaceful purposes.

Oil exports make up 80% of Iran’s total export earnings and 50-60% of government revenue according to the EIU report. Iran’s government budget for the current fiscal year ending in March forecasted oil exports of 2.2 million barrels a day (b/d). The International Energy Administration (IEA) recently estimated sales of around 1.1 million b/d, resulting in monthly losses of $5 billion for Iran according to a widely cited estimate. The sanctions and the Islamic Republic’s habitual economic mismanagement have also combined to send Iran’s currency plunging in value over the last six months.

With many of Iran’s oil customers bowing to Western sanctions, Iran’s dependence on the four Asian countries has grown substantially. Tehran has become especially dependent on China, which has long been its primary trading partner. Still, China is now estimated to purchase roughly 50% of Iran’s total oil exports despite having decreased its oil imports from Tehran by 23% year-on-year through the first 11 months of 2012.

India has similarly seen its reliance on Iranian crude decline sharply, with year-on-year imports down 17% in the first 8 months of 2012. Indian officials have also suggested they plan to cut imports by an additional 10-15% in 2013.

Both South Korea and Japan reduced their oil imports from the Islamic Republic by around 40% in the first 11 months of 2012 and pledged further reductions in 2013. Seoul has implied it could decrease its year-on-year imports by as much as 20% through the first six months of this year ending in May.

A U.S. sanctions bill signed into law by President Obama on December 31, 2011 cuts off access to the U.S. financial system to any entity conducting business with Iran’s central bank—which is the country’s primary mechanism for processing oil payments—along with other large Iranian banks. The legislation does allow the Obama administration to grant three-month renewable waivers to countries that continuously reduce their crude purchases from Iran. China, India, South Korea, and Japan have been granted two waivers since the sanctions went into effect in July 2012.

Meanwhile, the EU passed a boycott that prohibits any member state from purchasing oil from Iran. More burdensome for Iran, EU sanctions also prohibit European maritime insurance companies—which dominate the industry—from insuring oil tankers carrying Iranian crude, which has forced Iran to cover the insurance costs itself in order to convince its few remaining customers to continue purchasing crude.  These remaining customers have also demanded significant price concessions from Iran in order to continue their economic relations with the Islamic Republic, reducing the revenue Iran receives on the oil it can sell.

The situation is only likely to worsen for Iran in the months ahead. To begin with, global energy trends and continued sluggish economic growth make it easier for Western nations to sustain the sanctions without causing a spike in energy prices.

In fact, the U.S. continues to strengthen the existing sanctions regime. Early this week, President Obama signed into law the National Defense Authorization Act, which for the second straight year included rider provisions sanctioning Iran. Besides strengthening sanctions in the existing areas of energy, shipping and shipbuilding sectors, the new bill seeks to restrict Iran’s trade in precious metals, graphite, aluminum and steel, metallurgical coal and certain types of commercial software, according to the Wall Street Journal. The bill also directs the U.S. Treasury Department to sanction Iran’s media broadcast company, the Islamic Republic of Iran Broadcasting, and its director.

Perhaps more damaging for Iran is a provision Obama signed into law last summer but which is slated to go into effect next month. Under the threat of losing access to the U.S. financial system, this provision prohibits countries purchasing Iranian crude from transferring their payment to Iran directly or through a third-party, instead requiring that these funds be deposited and kept in banks located in the purchasing country and used only for legitimate purposes.

However, any satisfaction the West takes in the tactical success of the sanctions must be tempered by their inability to achieve the strategic end of forcing major Iranian concessions on its nuclear program. Tehran did offer a goodwill measure last summer by converting a substantial part of its stockpile of 20% enriched uranium into proliferation-resistant fuel plates for use at the Tehran Research Reactor.

Furthermore, Iran has expressed an interest in returning to talks with the five permanent members of the UN Security Council and Germany (P5+1) later this month, although there is little optimism that anything significant will come of these talks. According to Al Monitor, the P5+1 has only slightly sweetened the offer it made to Iran during the last round of talks back in June, in which it asked Iran to address almost all of its concerns at the onset in exchange for immediately allowing Iran to purchase spare parts for its against civilian aircraft and unspecific future sanctions relief in areas like oil exports. Unsurprisingly, Iran refused to accept these terms and there is little indication it is now willing to do so, with President Mahmoud Ahmadinejad calling on the country this week to reduce its dependence on crude exports.

Meanwhile, it seems increasingly apparent that the Western powers do not have a well-thought out endgame for the sanctions regime, short of Iran capitulating completely. In this sense, the sanctions against Iran are not only increasingly similar to the ones imposed on Saddam Hussein’s Iraq during the 1990’s, but also to the U.S. surge in Iraq that failed to achieve its political objectives despite being militarily successful and dramatically reducing violence. Indeed, with regards to current Western strategy towards Iran, one’s tempted to invoke David Petraeus in asking: “Tell me how this ends.”

Zachary Keck is assistant editor of The Diplomat. You can find him on Twitter: @ZacharyKeck.

Comments
12
Shadowfax
May 24, 2013 at 19:45

Why don't you back it up with stats ? Corporate Companies looting natural resources ? It didn't happen in Afghanistan and even if it did it would only be right.

It is not about the spoils of war. It is about compensation for war costs. The entire world benefited from War on Terror. but who bears the cost ? And use nukes ? When has the US used nukes ?

 

That is where the US is different from other countries. That is why the US does not want other countries to have nuclear weapons, countries which are unstable and irresponsible. You saw the North Korea fiasco in recent months ? It will be the same once Iran has nukes. Only the weak flaunt their strength and are agressive. Use nukes ? If they did what you were implying by "If require use nuclears also. No mercy.", they would have nuked Iraq, Vietnam. Well how about North korea with all those provocations and threats ?

 

You need to understand first what a Superpower actually means. Superpower does not mean only tremendous economic and military powers. It carries certain responsibilities, which the US has fulfilled various times. Whenever a region becomes unstable, the world expects the US to intervene. Ask Why should they ? It is only fair for them to recover the costs of intervention partly.

 

Tell you what, in Afghanistan, guess who is looting all the minerals ? China. China wasn't even involved during the invasion and even now is only lightly involved. It along with India says it wants stability in the region. WTF were they doing in 2000 ?

caj
January 8, 2013 at 02:59

Sanction Policy is old war game of USA. They done it in WWII with Japan. They done it with iraq. They done it with Taleban. All above countries were crushed later militarily.
The policy is to weak your enemy before attacking him. If Enemy dont get weak and you have no other chance, then? Well , convert your enemy into a friend. Maybe , strategic one , like India.
 USA is clever politician in word. It is skillful hunter. It hunts the prey before they move. It starves the enemy, make them  agree with some concessions.USA first make lose sactions. Then stricter. Then it breaks economic back of enemy. USA builds International and media pressure, diplomatic burden on its prey. If enemy agrees , then war is won without blood. If enemy make some concessions ,then it gets weaker. Then USA mobilises NATO and own forces near that country. Sancions turned into blockades. Still if the prey do not mend, attack. With all higher technology. Now all attention is on dominating country .If require use nuclears also. No mercy. 
After capturing prey, the eagle starts eating it. It calls its corporate companies to take charge of natural resources .Then in name of democracy, it launches a slave government onto captured country. After making sure that this arrangment will continue satisfyingly , it leaves the country. CIA however remains for remaining humanitarian causes. 
What to do if this subversion fails? That lesson we will learn from USA after 2014. Venue:Afgan.

Leonard R.
January 7, 2013 at 17:12

@JCDavis:
 
1. It's not working. 
 
2. North Korea and Cuba have not collapsed. 
 
The US embargo of Iran has one thing in common with China's U-shaped line.  
When it is not being ignored, it is being laughed at. It is a farce. Ime to try something new.

Anon
January 7, 2013 at 00:15

NATO has been at this Iranian Game since Mossadegh. Iran is no Libya – it has many, many cards to play.

Kanes
January 6, 2013 at 21:05

With high bargaining power of buyers, Iran will be compelled to sell oil at a discount. This will be a massive economic boost for China and India. Their cost of production will further go down threatening their competitors further. And this happens in a climate of oil prices going up in te world market. Although Saudi Arabia has stepped up it's exports, it has not fully matched the deficit created by Iran particularly towards the EU. Russia obviously benefits from higher oil prices and EU's winter dependence on Russian oil and gas more and more. Winners of this sanctions game are Russia, China and India while the losers are Iran and the EU. 

venze
January 6, 2013 at 10:36

Does the West's sanctions on Iran really work? It does not seem so, as Iran's economy which largely depends on oil has not faltered.
The four Asian countries continue to import Iranian oil albeit at a reduced volume. Who knows if undisclosed volume of oil might have flowed through a third country covertly?    (vzc1943, mtd1943)

Johnny Walker
January 6, 2013 at 07:14

When Iran sells its crude oil to any country, it must demand cash payment in Iran only and forget the USA and Europe's game. Cash and Carry for your crude. Bring the cash in your tankers and you may take out crude!!!

Mark Thomason
January 6, 2013 at 04:21

This creates a protected, guaranteed market for rival marine insurance, for a significant fraction of world oil.  Over the short run it may be a sanction, but over the long run it is self destructive.  Iran is hurt in the short run, but it is made stronger in the long run for displacing Western maritime insurance.  

EU sanctions also prohibit European maritime insurance companies—which dominate the industry—from insuring oil tankers carrying Iranian crude

Similar considerations govern the removal of the EU from Iran trade, when India and China and Turkey step in to take the market.  Short term pain is long term independence, and a reduction in the power and influence of the West.  
This policy is arrogant, to the point of blindness to our own longer term interests.
 
 

ram iyer
January 6, 2013 at 01:00

Excellent time of lives and excellent news. India and China need to grind in with their 2 billion people, plough through the West by new banking systems, insurance and tradiing systems where in all developing nations 140 of them have capacity to buy credit from 1 billion to 25 billion according to their size, need and capacity to buy, trade and grow on open platform where the rule of the game is common driver by biggest powers of the earth.
It is mandatory for the change and it comes only when it pinches. The debt ridden, self boisted (writing using own media) and fooling others are causing tremendous world trouble in existing system

JCDavis
January 5, 2013 at 23:06

"Meanwhile, it seems increasingly apparent that the Western powers do not have a well-thought out endgame for the sanctions regime…"
 
The endgame is simple: We will squeeze Iran like we squeezed North Korea and Cuba, and Iran will collapse just as those countries did.

Bankotsu
January 5, 2013 at 17:20

'Indeed, with regards to current Western strategy towards Iran, one’s tempted to invoke David Petraeus in asking: “Tell me how this ends.”'
How about implementing the "Indian model" on the Iranian nuclear question?
US lifts India and Pakistan sanctions

http://news.bbc.co.uk/2/hi/americas/1558860.stm

Vin
January 5, 2013 at 16:30

Iran will be interested in a credible engagement only when America takes steps like a) Permanent Moving out lock stock and barrel all military installations from the ME altogether b) Dismantle Dimona and other nuclear infrastructure in Israel and all structures uprooted from the foundations under the supervision of Iran c) Ship out all nuclear bombs, nuclear material and other radioactive material and equipment to a third country like India d) Pay Iran money for all the losses incurred due to sanctions along with the interest accrued thereof d) Stop financial support for Israel permanently e) lay hands off on politics of the ME altogether f) Close down CIA operations in ME. All the above must be credible and verifyable.

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