Dr. Sara Vakhshouri is founder and president of SVB Energy International, a strategic energy consulting firm with offices in Washington DC and Dubai.
Iran’s vice president, Eshaq Jahangiri, announced July 8 that any powerful country that is willing to work with Iran can pre-purchase Iranian oil. Iran is actively trying to convince its traditional costumers to purchase its oil for future deliveries in return for investment, goods or services in advance. Pre-selling oil is designed to get around US sanctions while building leverage for Iran in the short and long-term.
This method can help Iran access the credit it needs for investment, goods and services. It could also be used as a floating credit in INSTEX, the trading vehicle set up by the European Union (EU) to keep Iran in compliance with the Joint Comprehensive Plan of Action (JCPOA). EU countries have all halted their oil purchases from Iran since November 2018 after the US re-imposed secondary sanctions on Iranian oil exports. This was despite the fact that the US issued waivers at the time for two European countries, Greece and Italy, to continue to import some Iranian oil.
Iranian officials on many occasions have stated that their main condition to remain in the JCPOA is to be able sell their oil. Hence, pre-selling oil could be a practical solution for Iran and European countries, as it would help Iran’s economy to function while the sanctions are in effect.
Since the US announced in April that it would issue no more waivers for purchases of Iranian oil, Iran’s oil production has fallen to 2.3 million barrels per day in June and its exports have plunged to about 380,000 barrels per day. This is a historic low for both production and exports. Iran’s market share has been largely taken by other OPEC members -- primarily Saudi Arabia, the United Arab Emirates and Iraq. Iran’s condensate market share in South Korea, meanwhile, has been replaced mostly by US production from the Eagle Ford field. Iran is trying to find strategies to maintain a minimum market share at a time of oversupply in which even the recent sabotage of oil tankers in the Persian Gulf has failed to make prices surge as they would have in previous decades.
Pre-selling oil in return for investment, goods and services would help Iran re-gain its market share after sanctions unwind or lose their effectiveness. If Iran succeeds in signing a deal or two with countries such as India, China or South Korea, to pre-purchase Iranian oil for future deliveries, this would guarantee a minimum market share for Iran in these countries in a post US sanctions era.
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