Iran to prosper despite external pressures

In mid-April, Iran launched a barrage of rockets and drones at Israel—an unprecedented direct attack that marks a major escalation of tensions between the two perennial geopolitical enemies. Yet even as the external threats to Iran’s economy have increased, the country’s energy sector has appeared to go from strength to strength, with news reports highlighting that Iranian oil exports have recently risen to a six-year high.

Iranian oil exports to rise

Iran’s oil production is estimated to average 3.1 million barrels per day this year, which would be the highest reading since 2018—the year then-US President Donald Trump withdrew from the nuclear deal and reimposed sanctions on Tehran. This will be in stark contrast to the Middle East’s other major oil exporters, which unlike Iran are mostly subject to OPEC curbs ‑ output from Iraq, Kuwait, Saudi Arabia and the UAE is seen falling this year. As a result, Iran’s economy is expected to grow more quickly than the Middle East and North Africa average in 2024.

Further sanctions to be ineffective

Though Western nations are reportedly readying further sanctions on Iran’s oil sector, they are likely to miss the mark, given Iran’s considerable experience and skill at averting sanctions, and the fact that almost all the country’s oil is already being sold to China, not the West. US President Joe Biden is unlikely to push hard to enforce sanctions given that lower oil supply could spur already-persistent inflationary pressures and dampen his chances of beating Trump in the November elections.

Iran’s economy to be subdued domestically

Deteriorating geopolitics may not overly harm the oil sector, but the same is not true of domestic demand. The national currency has depreciated by over a quarter so far this year in the parallel market as a result of political tensions, which will leave Iran with the unenviable record of having the region’s second-highest inflation rate this year after Lebanon. This will entrench already tough domestic economic conditions and hit consumer spending and investment in turn.

Conflict with Israel is the elephant in the room

The probability is that there will be no all-out war between Iran and Israel. If this were to occur—which is not off the table, given the hawkish military leadership in both countries and the high risk of political miscalculation—all bets would be off, and Iran’s economy would quickly wave goodbye to its current resilience.

 

Aramco to maintain oil production at 12 million bpd

Saudi Aramco, the world's largest oil-producing company, announced on Tuesday that it has received directives from the Ministry of Energy to maintain its maximum sustainable capacity (MSC) at 12 million barrels per day. This directive puts a hold on previous plans to increase production to 13 million barrels.

The determination of MSC, as outlined in the press release, is a responsibility of the state under the Hydrocarbons Law, which was enacted by Royal Decree M/37 on December 20, 2017. This law provides the framework for Saudi Arabia's oil production strategies and capacity decisions.

Aramco also indicated that it would provide an update on its capital spending guidance when it announces its full-year 2023 results in March. This update is eagerly anticipated by investors and market analysts, as it will provide insights into the company's strategic planning and investment priorities in light of the current market conditions and the ongoing energy transition.

Putin arrives Saudi Arabia to meet Mohammad

Russian President Vladimir Putin will travel to Saudi Arabia on Wednesday to meet Crown Prince Mohammed bin Salman, a rare trip abroad to discuss oil production, OPEC Plus and the wars in the Gaza Strip and Ukraine.

Putin's meeting with the prince, known as MbS, comes after oil prices fell despite a pledge by OPEC Plus, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, to further cut output.

Putin arrived in Abu Dhabi on Wednesday for talks President Sheikh Mohammed Bin Zayed Al Nahyan in Abu Dhabi. He is due to then travel to Saudi Arabia for his first face-to-face meeting with MbS since October 2019.

The Kremlin said they would discuss energy cooperation, including as part of OPEC Plus, whose members pump more than 40% of the world's oil.

"Close Russian-Saudi coordination in this format is a reliable guarantee of maintaining a stable and predictable situation in the global oil market," the Kremlin said.

The Kremlin's chief's last visit to the region was in July 2022, when he met Supreme Leader Ayatollah Ali Khamenei in Iran.

It was not immediately clear what Putin, who has rarely left Russia since the start of the Ukraine war, intends to discuss with the crown prince of the world's largest oil exporter, just days after disagreements delayed a key OPEC Plus meeting.

They will also discuss the war between Israel and Hamas militants, the situation in Syria and Yemen, and broader issues like ensuring stability in the Gulf, the Kremlin said. A Kremlin aide said Ukraine would also be discussed.

Putin will host Iranian President Ebrahim Raisi in Moscow on Thursday, Kremlin spokesman Dmitry Peskov said.

Putin and MbS, who together control one-fifth of the oil pumped each day, have long enjoyed close relations, though both have at times been ostracised by the West.

At a G20 summit in 2018, just two month after the murder of journalist Jamal Khashoggi in a Saudi consulate, Putin and MbS high-fived and shook hands with smiles.

MbS, 38, has sought to reassert Saudi Arabia as a regional power with less deference to the United States, which supplies Riyadh most of its weapons and which is the world's top producer of oil.

Putin, who sent troops into Ukraine in February 2022, says Russia is engaged in an existential battle with the West - and has courted allies across the Middle East, Africa, Latin America and Asia amid Western attempts to isolate Moscow.

Both MbS and Putin, 71, want and need high prices for oil - the lifeblood of their economies. The question for both, is how much of the burden each should take on to keep prices aloft - and how to verify the burden.

OPEC Plus last month delayed its meeting by several days due to disagreements over production levels by some members. Saudi's energy minister said OPEC Plus also wanted more assurances from Moscow it would do good on its pledge to reduce fuel exports.

Relations between Saudi and Russia in OPEC Plus have at times been uneasy and a deal on cuts almost broke down in March 2020, when the markets were already shaken by the onset of the COVID pandemic.

But the two nations managed to patch up their relations within weeks and OPEC Plus agreed to record cuts of almost 10% of global oil demand, to prop up the oil markets.

Since war broke out between Israel and Hamas on October 07, Putin has cast the conflict as a failure of US policy in the Middle East and has fostered ties with Arab allies and Iran, as well as with Hamas.

When Russia intervened in the Syrian Civil War in 2015, it helped tip the balance in Syrian President Bashar Al-Assad's favour, ensuring the Syrian leader's survival despite Western demands that he be toppled.

"The Kremlin seeks to build its line of behaviour taking into account the opinions of the main regional players - Saudi Arabia, the UAE and Iran, who are not just observers, but also, in a sense, participants in the situation," Andrey Kortunov of the Russian International Affairs Council think tank told the Vedomosti newspaper.

 

Iranian oil output 3.1 million barrels per day

The US Energy Information Administration (EIA) in a report disclosed Iranian crude oil output at 3.1 million barrels per day (bpd). This indicates Iranian oil output has risen 500,000 bpd in the current year.

On October 29, the spokesman of the Iranian Oil, Gas and Petrochemical Products Exporters’ Union said that Iran’s oil production has increased to 3.4 million barrels per day, despite the US sanctions aimed at curbing oil exports and the associated revenue to Iran’s government.

“The latest reports show that Iran’s oil production has increased to 3.4 million barrels per day, while it was about 2.9 million barrels per day until recently,” Hamid Hosseini told IRNA.

Given that previously closed oil wells have been reopened and returned to the production cycle, Iran can increase its oil production to 3.8 million bpd, he said.

“If we seek to increase oil exports from 3.8 million barrels per day to 4.2 million bpd in the 7th National Development Plan, we need to invest an average of US$25,000 for each barrel of oil. Since these oil wells, we have the opportunity to increase the oil production to 3.8 million barrels per day,” he explained.

Hosseini also said that about 40,000 bpd have been added to the country’s oil production from the Sepehr and Jafir oilfields, which can help with the economic growth of the country.

 

Iran oil production grows 7% in 2022

Iran oil production in 2022 increased 7% as compared to the previous year, according to OPEC’s first monthly report released in 2023.

According to the Report, Iran produced 2.554 million barrels per day (bpd) of crude oil in 2022 that was 162,000 bpd more than the figure for 2021, when the output was reported at 2.392 million bpd.

Citing secondary sources, the report put Iranian crude output for December 2022 at 2.574 million bpd indicating a 9,000-bpd increase as compared to the figure for November 2022.

The country’s heavy crude oil price also increased by US$30.12 in 2022 to register a 43% rise as compared to the previous year, according to the OPEC report.

Iran sold its heavy crude oil at US$99.92 per barrel on average in the mentioned year, as compared to 2021 when the average price was US$69.8 per barrel.

In December 2022, the average price of Iranian heavy oil was reported at US$79.11, which decreased by US$9.62 compared to the earlier month.

Iran has been ramping up its oil production and exports over the past year as the country has been implementing new strategies to overcome US sanctions.

A recent report by Reuters stated that Iran’s oil exports have reached new highs in the last two months of 2022 and are making a strong start to 2023 despite US sanctions.

According to ship tracking data, Iran oil exports have risen mostly due to the higher shipments to China and Venezuela.

Energy consultant SVB International said Iran's crude exports in December 2022 averaged 1.137 million barrels per day, up 42,000 bpd from November 2022 and the highest 2022 figure SVB has reported based on estimates given earlier.

"In comparison to the Trump administration, there hasn't been any serious crackdown or action against Iran's oil exports," said Sara Vakhshouri of SVB. "January exports were so far strong like previous months."

Lower Chinese demand and Russia's supply to China have been a major challenge for Iran. Most of its oil still goes to the Far East, ultimately China. Iran also helps Venezuela to export its oil.

Consultant Petro-Logistics, which tracks oil supply, said it was also seeing an upward trend in Iranian crude exports which, in its view, in December 2022 reached their highest level since March 2019.

Kpler, a data intelligence firm, put Iranian crude exports at 1.23 million bpd in November 2022, the highest since August 2022 and almost at par with April 2019 average of 1.27 million bpd, although these slipped to just below 1 million bpd in December 2022.

According to another analyst, Vortexa, China's December 2022 imports of Iranian oil hit a new record of 1.2 million bpd, up 130% from a year earlier.

"Most of these shipments found home in Shandong, where independent refiners have turned to discounted grades since the second half of 2022 amid sluggish domestic demand and depressed refining margins," the company said.

Vortexa said supply of Russian Urals, the main competing grade to Iranian oil, fell in December 2022 - when a price cap on Russian crude exports and European Union ban created uncertainty for buyers.

The press department of China's Foreign Ministry, in response to a Reuters request for comment, said, "The legitimate and reasonable cooperation between China and Iran under the international legal framework deserves respect and protection," without directly addressing Reuters query on China's record Iranian oil purchases.

Iran has also been expanding its role in Venezuela, despite US sanctions, sending supplies of light oil for refining and diluents to produce exportable crude grades.

Iran's national budget bill for the upcoming year is based on even higher shipments of 1.4 million bpd, the semi-official Fars news agency reported this week.

Following Trump's removal of the United States from the nuclear deal and reimposition of sanctions, Iran's crude exports fell back to as little as 100,000 bpd at times in 2020 from over 2.5 million bpd in 2018, according to tanker trackers.

 

Biden leaves Saudi Arabia empty-handed

Joe Biden has left the region empty-handed hoping the OPEC+ group, comprising Saudi Arabia, Russia and other producers, will boost production at a meeting scheduled for August 03, 2022.

Gulf states, which have refused to side with the West against Russia over Ukraine, are seeking a concrete commitment from the United States to strategic ties that have been strained over perceived US disengagement from the region.

President Joe Biden told Arab leaders on Saturday that the United States would remain an active partner in the Middle East, but he failed to secure commitments to a regional security axis that would include Israel or an immediate oil output rise.

Biden, who began his first trip to the Middle East as president with a visit to Israel, presented his vision and strategy for America's engagement in the Middle East at an Arab summit in Jeddah.

The summit communiqué was vague, however, and Saudi Arabia, Washington's most important Arab ally, poured cold water on US hopes the summit could help lay the groundwork for a regional security alliance - including Israel - to combat Iranian threats.

A plan to connect air defence systems could be a hard sell for Arab states that have no ties with Israel and balk at being part of an alliance seen as against Iran, which has a strong regional network of proxies including Iraq, Lebanon and Yemen.

Saudi Arabia's Foreign Minister, Prince Faisal bin Farhan Al Saud, said he was not aware of any discussions on a Gulf-Israeli defence alliance and that the kingdom was not involved in such talks.

He told reporters after the US-Arab summit that Riyadh's decision to open its airspace to all air carriers had nothing to do with establishing diplomatic ties with Israel and was not a precursor to further steps.

Biden focused on the summit with six Gulf states and Egypt, Jordan and Iraq, while downplaying the meeting with MbS which drew criticism in the United States over human rights concerns.

Biden needs the help of OPEC giant Saudi Arabia at a time of high crude prices and other problems related to the Russia-Ukraine conflict. Washington also wants to curb Iran's sway in the region and China's global influence.

Biden came to Saudi Arabia hoping to reach a deal on oil production to help drive down gasoline prices that are driving inflation above 40-year highs and threatening his approval ratings.

He leaves the region empty-handed but hoping the OPEC+ group, comprising Saudi Arabia, Russia and other producers, will boost production at a meeting on Aug. 3.

Gulf states, which have refused to side with the West against Russia over Ukraine, are seeking a concrete commitment from the United States to strategic ties that have been strained over perceived US disengagement from the region.

Riyadh and Abu Dhabi have been frustrated by US conditions on arms sales and at their exclusion from indirect US-Iran talks on reviving a 2015 nuclear pact they see as flawed for not tackling concerns about Iran's missile program and behaviour.

Israel had encouraged Biden's trip to Saudi Arabia, hoping it would lead to warmer ties between it and Riyadh as part of a wider Arab rapprochement.

 

 

United States allows antitrust suits against OPEC members to subjugate Saudi Arabia

In my previous blogs I have often highlighted that the Organization of the Petroleum Exporting Countries (OPEC), remains subservient to the United States. OPEC’s decisions to raise price or to enhance production quotas are dictated by the US President and/or US administration.

Kindly, allow me to say that Americans are most unthankful nation; they never spare a chance to influence OPEC decisions. To put Saudi Arabia, often termed defecto leader of the cartel, under further pressure, a House panel in the United States has passed a bill to open the OPEC oil production group and countries working with it to lawsuits for collusion in boosting petroleum prices. However it was uncertain whether the full chamber would consider the legislation or not.

In one of my previous blogs, “An agreement signed with United States in 1945 will continue to haunt House of Saud forever”, I had referred to an agreement signed in 1945 between President of United States, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, which defined the relationship between the two countries for the years to come. 

The deal that was struck between the two men at that time was that the US would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the US would guarantee the security of the ruling House of Saud.

The deal was altered slightly since the rise of the US shale oil industry. The US also expects the House of Saud to not only supply the US with whatever oil it needs for as long as it can but also that it will also facilitate the US shale industry to continue to function and to grow.

The NOPEC bill, introduced by Representative Steve Chabot, a Republican, passed on a voice vote in the House Judiciary Committee. It would allow the US Justice Department to bring anti-trust lawsuits against oil-producing countries in the Organization of the Petroleum Exporting Countries (OPEC).

Similar bills to pressure OPEC when oil prices are on the rise have appeared in Congress without success for more than 20 years.

"It's high time that we do more to fight ... production controls that continue to keep the price of crude oil and gasoline arbitrarily high in the United States," Chabot told the committee before the vote.

Oil prices have risen about 33% this year and on Tuesday hit the highest level in a month, above US$68 a barrel for Brent international crude. But that was well below the level of more than US$100 a barrel in 2008 when a similar bill passed in the full House.

The rise came despite a deal OPEC+, a group consisting of OPEC members, Russia and their allies, struck this month to gradually ease oil output cuts from May, as economies recover from the global pandemic. The deal came after US Energy Secretary Jennifer Granholm called on top OPEC producer Saudi Arabia to keep energy affordable for consumers.

A similar bill to pressure OPEC was reintroduced in the Senate last month, by Republican Senator Chuck Grassley, a supporter of ethanol, a motor fuel additive made from corn, and Democrat Amy Klobuchar. To become law, a bill would have to pass both chambers in Congress and be signed by President Joe Biden.

Anti Iran stance of western media

In one of my previous blogs I had accused western media of being dishonest. Some of my readers termed it a ‘sweeping statement’. Since then, I have been reading news pertaining to Muslim countries more carefully and dispassionately and also avoiding giving any immediate response. However, today I read news released by Reuters captioned “Exclusive: Iran capitalizes on OPEC oil cut to sell millions of barrels” submitted by Jonathan Saul.

This report talks about Iran has selling more than 13 million barrels of oil that it had long held on tankers at sea, capitalizing on an OPEC output cut deal from which it is exempted to regain market share and court new buyers, according to industry sources and data.

In the past three months, Tehran has sold almost half the oil it had held in floating storage, which had tied up many of its tankers as it struggled to offload stocks in an oversupplied global market.

The amount of Iranian oil held at sea has dropped to 16.4 million barrels, from 29.6 million barrels at the beginning of October, according to Thomson Reuters Oil Flows data. Before that sharp drop, the level had barely changed in 2016; it was 29.7 million barrels at the start of last year, the data showed.

Unsold oil is now tying up about 12 to 14 Iranian tankers, out of its fleet of about 60 vessels, compared with around 30 in the summer, according to two tanker-tracking sources.

I would like to reiterate that this news pertains to 2016 and any details about 2017 are yet to come. During December 2016 both Saudi Arab and Russia have produced oil at record levels and more shale oil rigs have resumed production in the US. Therefore, it may be said that Iran was not alone in capitalizing on its crude inventories. It only followed the footprints of Saudi Arabia, Russia and the US.

OGDC achieves record crude oil production per day

It is not a secret that Pakistan is highly deficient in indigenous energy products. Import of crude oil and POL products eats up billions of dollars every year. On top of that extensive gas and electricity load shedding keeps capacity utilization of industrial units below optimum capacity utilization. The prevailing situation demands accelerating activities of exploration and production (E&P) companies. Pakistan meets around 12 percent of its oil requirement from indigenous resources.

The state owned largest E&P, Oil & Gas Development Company (OGDC) claims it is making extra efforts and one tends to agree with the statement partially. Its latest announcement says that the Company has achieved a record production of 50,172 barrels per day (bpd) of crude oil. By international standard the number may look dismal but for Pakistan it looks enormous, 57 percent of the country’s total crude oil production estimated around 88,000 bpd.

The information disseminated indicates that the Company is all set to inject about 4,000 barrels of additional oil per day, 100 million cubic feet per day (mmcfd) of gas and 400 tons of liquefied petroleum gas, starting with fewer quantities in the first week of December and then gradually going up. This addition would come from Kunar Pasakhi Deep field in Sindh which had been held up due to disputes and court cases.