Following crushing sanctionsIran relieves sanctions pressure by exporting new petrol surplusDomestic petrol consumption has fallen 20 percent in recent weeks, leaving Iran with a surplus for export, President Hassan Rouhani told ministers on Wednesday, almost a month after security forces repressed nationwide protests against petrol price hikes.
Since May 2018 when US President Donald Trump unilaterally withdrew from the 2015 Iran nuclear deal and imposed
ever tightening sanctions on the Iranian regime, particularly its lucrative oil sector, Tehran has sought to drop its reliance on crude oil and instead focus on the export of petroleum products – a commodity which can circumvent sanctions as its origin is harder to trace.
“This [petrochemical] industry has the biggest role in relation to other sectors in repatriating currency from exports of our products back to the economic cycle,” oil minister Bijan Zanganah said September 22.
“When I was the oil minister… in 1997, the value of the petrochemical products was one billion [dollars].” Zanganeh said.
Now he has pledged to increase the industry’s value to $25 billion by early 2021 – a significant sum, given the recent draft state budget is worth $39 billion.
Iran is projected to export one million bpd for next year’s fiscal budget at a price of $50 per barrel. Washington believes this figure is the stuff of “fantasy” and expects Iran will be forced to revise next year’s forecast as it did earlier this year.
Long before the government tripled the price of petrol overnight, sparking nationwide protests in November, Iranian authorities were already boasting about how Iran’s refined petroleum products were becoming hugely profitable.
In late September, the head of Iran’s Energy Exchange Sayyid Ali Hosseini said the country has earned close to $200 million per week since late July when it started floating large quantities of petrol to international buyers.
“During the last seven weeks, over 100,000 tons of petrol was floated on average, all of which was traded,” Hosseini said September 23.
This huge profit margin could partly explained why Rouhani’s government took such a gamble in raising the price of petrol from 1,000 tomans per liter to 3,000 tomans ($0.23) at a time when the overwhelming majority of the population was suffering under crippling US sanctions, high inflation, and an increasing volatile currency.
Tehran was quick to point out the whopping amount of petrol being saved since the price hike. Amir Vakilzadeh, who was appointed in June to head the National Iranian Oil Refining and Distribution Company, said on December 8 that because of the plan of fuel rationing, the consumption of petrol has dropped from 99 million liters per day to 77 million per day.
From a net importer to exporterOnce Iran’s main source of hard cash, the export of crude oil has fallen dramatically from just over 2.5 million barrels per day (bpd) in April 2018 before Washington withdrew from the Joint Comprehensive Plan of Action (JCPOA) to around 300,000 bpd in November.
Washington has frightened many Iranian customers by threatening sanctions if they deal in Iranian crude. But while the origins of crude oil are easily traced, the source of refined products is easier to hide. Mindful of this, the US government has specifically targeted Iran’s petrochemical industry, which continues to feed Iranian coffers.
Executive Order 13846 of August 6, 2018 authorized the Treasury Department to impose sanctions on any foreign financial institution that is engaged in the “purchase, acquisition, sale, transport, or marketing of” petroleum, petroleum products, and petrochemical products from Iran. For decades, Iran spent billions of dollars subsidizing imported petrol as its refineries struggled to cope with the growing demand of Iranian motorists. But, earlier this year, oil minister Zanganeh said Iran had become self-reliant in petrol production since the third phase of the Persian Gulf Star refinery came online – producing 45 million liters of petrol every day.
In July, Iran started exporting petrol to its neighbors by floating large quantities on the Fuel Exchange in Tehran destined for export. That day, 3,000 tons of petrol was sold to an unidentified company, the destination – “international.”
The same company that bought the initial 3,000 tons at the base price of $581 per ton has purchased 188,500 tons of petrol as of November 27 – worth more than $100 million.
Hand of the IRGCThe giant Persian Gulf Star refinery situated on the Persian Gulf coast has been critical in raising Iran’s petrol production. The refinery’s construction started in 2006. Work on its fourth phase is now underway.
After the Obama administration imposed sanctions on Iran in 2010, most foreign companies withdrew from the project, leaving the way clear to the Khatam al-Anbiya Construction Headquarters (Khatam HQ), the economic arm of the Islamic Revolutionary Guard Corps (IRGC), which works in construction, aviation, oil, banking, metals, automobiles, and mining industries, as well as defense and counter terrorism.
The refinery uses around 450,000 bpd of natural gas condensate, a high-value light crude, as feedstock from the giant South Pars gas field which is shared between Iran and Qatar. The Kahtam HQ was also heavily involved in bringing the South Pars gas field online.
The Trump administration designated the IRGC as a foreign terrorist organization in April before sanctioning an important wing of the country’s petrochemical industry for its links with the IRGC.
“The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took action today against Iran’s largest and most profitable petrochemical holding group, Persian Gulf Petrochemical Industries Company (PGPIC), for providing financial support to Khatam al-Anbiya Construction Headquarters (Khatam al-Anbiya), the engineering conglomerate of the Islamic Revolutionary Guard Corps (IRGC),” the US Treasury said at the time.
Khatam HQ is a giant conglomerate of companies and foundations that work in almost every field of the Iranian economy and operates in Syria and Iraq.
It was established 30 years ago in December 1989 under article 147 of the constitution which allows the security forces to use the expertise they honed during the 1980s war with Iraq to rebuild the country’s infrastructure.
“On the topic of the resistance economy, one issue that has been ignored is the reduction and prevention of sale of crude,” Saeed Mohammad Islami, the powerful head of Khatam HQ, said on Saturday, marking conglomerate’s 30th birthday.
“Had we heeded this matter in the past years and turned oil into products, we could have easily sold these products even during the sanctions, and we would not have to witness the obstacles that we are facing in relations to oil sanctions.”
For nearly a decade, the Iranian leadership has spoken about a “resistance economy” to prevent US economic sanctions parlaying its economy by relying on domestic production.
“In the current environment, we are able to receive the funds from the sale of petroleum products and we are still exporting petroleum products,” said Islami.
“The six phases of the South Pars were designed by the Headquarters … 35 percent of the production of petrol, 20 percent of natural gas, and 22 percent of gasoline is in the hands of the Headquarters,” Islami said October 3.
As the government and the IRGC stepped up efforts to release large quantities of petrol for export, security forces have continued their crackdown on those who are engage in petty smuggling, while crushing the recent protest, killing at least 200 people, including 13 women and 12 children according to UN figures.
On the night of December 9, security forces fired upon a vehicle suspected of smuggling petrol in the port of Jask, not far from the Persian Gulf Star refinery, killing a young man inside.
Iran will continue to utilize the petroleum products sector to bypass sanctions, but it is not yet clear whether the US with launch a fresh crackdown on this trade in the coming months.I think we say that the US has launched a fresh crackdown“Iran will not be able to make the investments it needs to maintain long-term energy production,” Brian Hook, US special representative for Iran, told the Council on Foreign Relations on Thursday.
“The regime is hoping to compensate for the fall in crude exports by increasing its output of refined products. But here too our enforcement is adapting, and we are confident that Iran’s refined product and petrochemical sectors—customers will continue to stay away once they are made aware of the risks.”
https://www.rudaw.net/english/business/15122019