Iranian oil tackles demands of global market

The world will no longer need Iranian oil in the short-term, oil and energy analysts said this week, suggesting that European and U.S. sanctions will continue to be imposed on Iran.

A group of analysts, interviewed by Al Arabiya, said that although Western sanctions will not completely erase the global need for Iranian oil, the politics behind the implementation of the sanctions are carefully plunging Iran into an abyss.

The analysts say Iran will not be able to endure the restrictions on their oil industry for more than six months.

The sanctions have led to a continuous decline in Iran’s oil exports since the beginning of the year in comparison with its 2.2 million barrel-per-day average in 2011.

According to oil industry sources, Iran released last June between 1.2 million and 1.3 million barrels per day (bpd).

Kuwaiti oil expert Hajjaj Boukhudour said that “in the short term, the world can do without Iranian oil,” adding that OPEC raised its production from 24.5 million bpd to 30 million bpd, with the probable increase in availability for all countries according to their productivity potential and capabilities.

This is what happened in Saudi Arabia and the Gulf states; countries that were able to fill the gap of the Iranian exports that were mostly destined to Asian countries, mainly China, India, Korea and Japan.

Boukhudour pointed out that Iran’s oil had entered the depletion phase several years ago, adding that the world has not been relying on it from a strategic perspective. Although it was the second largest producer among OPEC countries, the world has prepared itself so it will not depend on Iranian oil in the long term.

Boukhudour explained that Iran has lost about 60 percent of its oil exports, and that it is currently trying to smuggle its exports to the Central Asian countries located on its borders, through the same mechanism that was used by Iraq during the embargo and sanctions phase, noting that Iran is severely suffering from restrictions on its financial transactions, which is greatly affecting its foreign trade in general.

The Kuwaiti expert confirmed that the policy adopted by the Western countries towards Iran has been an attempt to uphold Iran’s weakness, and at the same time, making sure that the collapse would not plunge Iran fully to the depths of the abyss.

The analysts expect Iran to eventually respond to the international demands regarding its contested nuclear program. He noted that Iran is currently seeking to increase the oil price by straining the market, and mobilizing pressure groups around the world, to ease the pressures on the aforementioned in case of significant price increases.

As for closing the Strait of Hormuz, Boukhudour said “the closing of the Strait will be a suicidal option to Iran; it will negatively affect Iran more than any other country since it will be a strong blow to itself but it only slightly affect Saudi Arabia and Kuwait. As for the United States and the West, they will not be affected much compared to the damage that can occur to China.”

He highlighted that the closure of the Strait will impose on Iran severe sanctions, from most of the world, even from its allies themselves, especially Russia. Iran will be everybody’s target, and this will trigger the collapse of the current regime. He added that “the closure of the Strait, despite its simplicity for Iran especially that it will not take more than few minutes, it will take more than 10 days to re-open it.”

Pressure on prices

Expert in energy economies, Dr. Mishaal al-Samhan, noted that “the current sanctions on Iran are just seeking to exert economic pressures without fully abandoning Iran’s oil, even if it may seem possible in the short term.” He added: “I do not think that the world will abandon about 2.5 million barrels of oil a day, because it will narrow the margin between supply and demand, which contributes to the increase in prices, and thus exacerbating economic problems in various regions in the world, particularly in Europe, as well as China that is experiencing a decline in growth rates, and Japan too.”

Resorting to politics

Samhan also pointed out that Iran is trying to face these sanctions by gathering their political playing cards, not their economic ones. Iran’s recent dialogue has surrounded the closure of the Strait of Hormuz and it has been conducting military maneuvers, for media purposes.

Moreover it is exerting pressures on the markets in order to increase the prices, but eventually, as tensions increase, Samhan expected that Iran will retreat and accept to negotiate.

A well-informed source in the oil industry and the Iranian maritime shipping plans, told Reuters news agency that Iran’s exports will fall to a maximum of 1.1 million barrels per day. Japan and South Korea - two of the top five buyers of Iranian oil – halted all Iranian imports this month due to problems related to the ships insurance.