Experience is the word the Iranian government, bureaucrats and businesspeople are counting on as a safety valve against the new unilateral U.S. sanctions reimposed by President Donald Trump when he announced the abandoning of the nuclear deal on May 8. Despite the forecast of sluggish growth, a major contraction and reduction in oil and non-oil exports, the Iranians believe that Iran will find a way to keep the oil and natural gas trade flow with its main customers, as it has done in the past under harsher sanctions. For almost 40 years, Iranians have been living under tough economic sanctions, first imposed by the U.S. and sporadically followed by the United Nations and European Union.
These four-decade-long sanctions, Iranians argue, have equipped them with adequate experience to generate solutions to maintain trade and the economy, despite major declines in the gross domestic product (GDP) in the periods of sanctions and war including the period of 1980 to 1988, 2012 and 2015.
While experience is the popular motto, Iranians also count on their longtime oil customers, including China, India, Turkey and their ally Russia, to keep the trade flow. There are hesitations over the attitude of the Europeans once the sanctions that target the country's oil industry take effect on Nov. 4 – which happens to be the 39th anniversary of the 1979 hostage crisis at the U.S. embassy in Tehran.
"Iran has been under U.S. sanctions for the last 40 years. Beginning with Jimmy Carter in 1979, the sanctions continued with Ronald Reagan in 1984, Bill Clinton in 1996, George W. Bush in 2002 and Barack Obama in 2012 and now Donald Trump," Asadollah Asgaroladi, the chairman of the Iran-China Chamber of Commerce and Industries said to the Daily Sabah in an exclusive interview in his office in Tehran.
Iranian business magnate Asgaroladi is the president of Hasas Co., the leading exporter of Iranian nuts and pistachios since 1953. The main destination of his saffron, nuts and pistachios is China. "We have learned very well how to live under sanctions and move against them," Asgaroladi said.
As far as Asgaroladi is concerned, "Iran will continue trade with its trade partners and work on a plan to preserve the foreign trade volume. Therefore, we are not afraid of U.S. sanctions."
In reference to the previous sanctions that were levied by former President Barack Obama in 2012 and coupled with EU and U.N. sanctions, Dr. Gholamreza Mesbahi-Moghadam, vice president of Imam Jafar Sadıq University, a former member of the seventh, eighth and ninth legislatures of the Islamic Republic of Iran, and a member of the Expediency Discernment Council, stressed that Iran does not need to worry about the trade of crude oil after Nov. 4 since the country will continue trade with major customers like Turkey, China and India.
Moghadam did not specifically highlight that the EU – one of the largest buyers of Iran's oil – will also continue purchasing crude oil from Iran after the implementation of the sanctions, but he emphasized Iranian oil, which was sold at $52 per barrel in 2017, is vital for Europe's energy security and stopping trade with Iran will be the major loss of significant energy supply and its competitive economy.
According to the data of the Organization of Petroleum Exporting Countries (OPEC), Europe imported 755,000 barrels of crude per day from Iran in 2017, which was 497,300 barrels per day (bpd) in 2016. The data of the European Commission also revealed that the value of the EU's petroleum and petroleum products from the country reached 8.9 billion euros, constituting 88.7 percent of Iran's exports to the union.
What is necessary for Iranians in managing economic, political and social life under sanctions at a time the country's economy is struggling with a currency crisis, inflation and high youth unemployment is a well-planned administration.
"The unilateral sanctions of the U.S. indeed offer great opportunity for Iran. If the government and the economic actors succeed in ensuring a good management of the sanctions regime," Seyed Ahmad Hossein, the Managing Director of Etedal Arvand Trading Co., a company that exports petroleum products to Georgia, United Arab Emirates, Turkey and Oman. Hossein stressed the significance of the unilateral nature of the sanctions, as there are no U.N. sanctions this time on Iran. He referred to the past experience of the country's agility to adapt to sanctions and said, "Some of our customers like Turkey and China announced that they will not recognize the U.S. sanctions and the EU has not declared that its abandoning of the nuclear deal because they saw that Iran abides by the terms of the nuclear deal."
The sanctions will also enable Iran to develop and cement its ties with longtime trading partners, Hossein opined, because cooperating to keep the trade flow and developing alternative payment methods will enhance the scope of cooperation and partnership, he believes. Citing Iran's past performance under sanctions, Etedal Arvand Managing Director Hossein said that the country has four decades of experience and its performance so far proved that U.S. sanctions cannot be harmful. "Forty years have shown that Iranians are more flexible to sanctions," he said with emphasis on the fact that the eight-year Iran-Iraq war during the 1980's damaged the society and economy more than the sanctions.
Oil exports slump before sanctions kick in
Although Iranians speak with "confidence" when it comes to the ways of keeping Iran's economy online with ongoing oil trade under the sanctions, the country's largest sector has already seen declines in exports. From March 20, 2017 to March 20, 2018, which corresponds to Iranian year 1396, Iran's total exports were recorded at $98.1 billion, of which $65.8 billion came from oil exports. The share of oil industry in gross domestic product based on current prices was 13.5 percent.
While business circles and government officials rely on past experience to keep the crude oil trade, it is highly likely that OPEC's third largest producer will see a decline in exports by nearly 600,000 bpd to 700,000 bpd according to some estimates.
"There is no doubt that returning sanctions will cut into Iran's oil exports, which have already fallen to levels last seen before sanctions relief came into effect in 2016," said Esfandyar Batmanghelidj, the founder Bourse and Bazaar, a business and media company focused on Iran.
In the same vein as other experts and businesspeople, Batmanghelidj also emphasized that China, India, and Turkey will probably continue to purchase Iranian oil. This, he suggested, will be made possible by a combination of securing waivers from the U.S. government, operating trade using state-owned tankers and refineries, conducting trade in local currencies, and even resorting to barter, which is oil-for-goods trade.
"Iran will do everything it can to make its oil attractive and has already begun to offer discounts," Batmanghelidj argued. Iran had been trading 2.5 million bpd before the U.S. and U.N. sanctions and the crude trade volume hovered around 1 million bpd to 1.2 million bpd during the sanctions period from 2013 to 2015. After the Joint Comprehensive Plan of Action (JCPOA), whereby P5+1 countries – the U.S., the U.K., France, China, Russia, and Germany – along with the EU agreed to relieve sanctions imposed on Iran on the condition that the country curb its nuclear capacity in July 2015, Iran's crude exports saw sli
ght increase in 2016 reaching 1.9 million bpd and jumped to 2.1 million bpd in 2017, according to the data compiled from the OPEC. While the rising trend continued in early 2018, Iran's oil sales abroad have seen considerable decreases falling 2.01 million bpd and 1.31 million bpd by Sept. 13 this year, which reached as high as 2.8 million bpd in April, Bloomberg data showed.While China sustained its oil imports until July to above 800,000 barrels a day, the Persian Gulf's biggest crude customer cut oil imports to as low as 581,000 barrels a day. Indeed, total flows of crude and condensate slumped in the three main Asian destinations, China, India and Japan. In total, there are 1.1 million barrels headed to those nations, down from 1.8 million in July. South Korea also announced that it stopped buying oil from Iran in August. Some Japanese and Indian refiners also reported that they have already stopped and are planning to stop buying oil from Iran soon, as both countries do not want to jeopardize a political alliance with Washington.
Turkey's crude oil imports from Iran decreased by approximately 71 percent in June before U.S. sanctions targeting the Iranian energy sector take effect on Nov. 4.
While Turkey imported 930,978 tons of crude oil from Iran in May, the figure fell to 287,842 tons in June, according to the monthly petroleum industry report from the Energy Market Regulatory Authority (EMRA). In the first five months of the year, Turkey's crude imports from Iran made up more than 50 percent of its total oil imports, the EMRA data showed.
Last year, Turkey imported 25.8 million tons of crude oil, and Iran ranked first among Turkey's oil suppliers with 11.5 million tons.
Although Iranians presume that energy trade with China, Iran and Turkey will likely to continue after Nov. 4, there is hardly any unanimity of predictions as to whether one of the largest buyers of Iranian crude – the EU – will keep trading.
"For Europe, there is little that can be done, and most European officials concede in private that they will not be able to sustain oil purchases from Iran, especially given that the U.S. has denied a sanctions waiver," Batmanghelidj said. Cargoes loading for Europe have already been falling from a peak of 22.2 million barrels in March down to about 12 million barrels in August, Reuters data revealed.
A senior energy analyst at a leading Iranian energy company also strongly emphasized that Iran's crude exports to the European refineries in Spain, Greece and Italy will totally stop once the sanctions kick in.
Under new Trump sanctions, credit access for European refineries has already been cut off although European leaders claim that they will stick to the Iran deal.
According to a report by Reuters, Swiss lender Banque de Commerce et de Placements (BCP) told its customers that it would stop financing Iranian oil cargoes. Customers of BCP include Greece's Hellenic Petroleum, Total and Litasco, the Geneva-based trading arm of Russia's Lukoil. Litasco had a 300 million euro oil export prefinance deal with Iran but pulled the plug on the revolving credit when the new set of sanctions was announced. Spanish refiners also announced they will stop oil cargoes had from Iran.
Moreover, European companies such as France's Total are walking away from Iran for fears of triggering U.S. sanctions although Iran's president has repeatedly urged the remaining signatories to its 2015 nuclear agreement to maintain the pact. Total and China's state-run China National Petroleum Corporation (CNPC) signed a $4.2 billion deal with the state-run National Iranian Oil Company in July 2017 to develop the South Pars offshore field, one of the world's largest natural gas fields. After Total abandoned the agreement, Chinese company took over its shares.
Regarding the contradiction between the European companies that leave the Iranian market and European politicians who have so far urged the maintenance of the nuclear deal, the Iranian energy analyst, on the condition of anonymity, told Daily Sabah in the headquarters of his firm in Tehran that the behavior of companies is generally shaped by the investment climate and the responsibil
ity toward shareholders in addition to their bigger dealings with U.S. companies. He particularly pointed out that European corporations do not act and think like politicians. The decision-making process continues rather independently of the political discourse, he opined.
"So far, we have not seen the real impact of the sanctions, the impact has not been felt totally, albeit a small decline. But after November, we will see major effects," he said. "The Europeans will not buy even one barrel of oil after sanctions," the energy analyst said. He argued that the EU might find alternatives in U.S. shale and Saudi Arabia.
In late June, U.S. President Trump said in a tweet that he had assurances from Saudi King Salman bin Abdulaziz that the oil giant kingdom would increase oil production, possibly up to 2 million barrels a day, in response to turmoil in Iran and Venezuela.
The Trump administration has been pressing Saudi Arabia and other OPEC members to supply enough oil to offset the lost Iranian exports and prevent steep rises in oil prices. Meanwhile, the U.S. Energy Information Administration (EIA) raised its expectation for 2019 production growth to 1.02 million bpd from 1.01 million bpd previously. Thanks to shale output, U.S. crude production has hit over 10 million bpd this year.
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