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Iran Itches to Kick-Start Oil Production

Iran’s got a new oil minister, and he’s keen on ramping up the country’s oil production capacity and, eventually, its production. Bijan Zanganeh is seen as a much more technocratic appointee than his predecessor, and has a proven track record—he was Iran’s oil minister during the country’s so-called “golden age” of production in the late nineties and early aughts. But today he has to deal with harsh US-led sanctions over Iran’s nuclear-enrichment program that have crippled the country’s oil exports, which are currently at a 26-year low.

One way Iran is working around the sanctions is by beefing up exports of fuel oil, a byproduct of refining crude that is not covered by the sanctions. As the WSJ reports, China is taking special advantage of this “gap” in the sanctions:

China imported 5.4 million barrels of Iranian fuel oil valued at $495 million in the first seven months of 2013, according to Chinese customs data, up from less than $1 million in all of 2012. China has purchased more Iranian fuel oil this year than in the past four years combined, according to the data.

By increasing fuel-oil imports, China has offset some of Iran’s lost revenue from lower crude exports. China imported 3.3 million fewer barrels of Iranian crude in the first seven months of 2013 compared with the same period a year earlier, according to customs data.

But helpful though these fuel oil exports might be, Iran is eager to ramp up crude production. Zanganeh believes increasing the country’s oil capacity will strengthen “Iran’s negotiating power in the international community and OPEC.” And though US sanctions apply to countries importing Iranian crude, exceptions have been made (most notably for China), and demand for oil in the developing world remains high. The WSJ reports that “India’s finance minister said last week that the country wants to boost imports of Iranian crude as it wrestles with economic woes.”

Iran used to be the second largest producer in OPEC, but has fallen to fifth in recent years. Saudi Arabia has made up much of that difference, but in a recent interview Zanganeh was somewhat defiant about regaining Iran’s position amongst the petro-cabal, saying “we only ask those who have replaced us in the world’s oil markets to know that when we are re-entering these markets they will have to accept that the oil prices decline or they should reduce their production to create enough space for Iran’s oil.”

Tehran is obviously hoping other OPEC countries will constrict supply to keep the price inflated; as the chart below shows, Iran needs the price of oil to be much higher than it currently is just to balance its budget.


That chart ought to terrify Tehran. We don’t envy Zanganeh—managing Iran’s oil, which the country relies so heavily on, in the face of heavy Western sanctions will be an extraordinarily difficult task.

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  • Jacksonian_Libertarian

    Sanctions work for only as long as it takes to set up smuggling operations. But another option exists, Destroy Iran’s soft-target energy industry. Pipelines, Storage tanks, Refineries, Tanker cars and vehicles, are all easily destroyed as once they are on fire, they mostly destroy themselves. Since, Iran’s regime is completely dependent on oil for funding and to buy support, the regime will end when they no longer have any oil to sell.

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