Are American and European sanctions on Iran’s oil industry working too well? That’s the conclusion reached by the Centre for Global Energy Studies (CGES). The widely-respected think-tank estimates Iran will earn $56 billion in oil revenue this year, it’s third-highest level ever. In line with estimates from other analysts, the CGES predicts Iran’s oil export volume will fall by nearly 600,000 barrels a day, nearly one-third of its export volume. But despite the best efforts of countries like Saudi Arabia to ramp up production, the high price of oil has offset the loss in volume. In short, the Iranians are exporting less, but receiving such a high price for what they do sell that the overall effect of the drop in exports is minimal.Despite the CGES forecasts, the Financial Times does note the sanctions are having some impact:
However, analysts point out that Tehran is finding difficulties in repatriating the funds due to the sanctions on its central bank. Hellenic Petroleum, a Greece-based refiner, recently stopped importing Iranian oil as it was unable to transfer its payments. […]Iran has proposed an oil-for-grain barter deal with India, currently its biggest oil client, because of the difficulties New Delhi faces in transferring payments from its refiners to Iran’s central bank.
Iran is set to meet with representatives of six major powers at the end of May to discuss its nuclear program. Initial reports suggested diplomats were cautiously optimistic, but at least some of that hope was attributed to the belief that sanctions were adversely affecting Iran’s oil revenue. President Obama and his allies across Europe and the Middle East are justifiably searching for a diplomatic resolution. Since this strategy is predicated on the effectiveness of the sanctions, the CGES report is not a hopeful sign that negotiations will succeed.Finding the right amount of pressure to exert on Tehran is a delicate balancing act. As the CGES report demonstrates, if sanctions increase oil prices too much, it substantially dilutes their impact. Meanwhile, high oil prices also jeopardize the fragile economic recovery in both America and Europe, which in turn could strain the political will on both sides of the Atlantic for continuing the sanctions. The diplomatic chess game still has time to play out, but the endgame is getting closer.