As Prices Rise, Will US Ease Off Pressure On Iran Oil Exports?
Uncertainties in global energy were highlighted Sunday in a Bloomberg report that the United States may “turn more of a blind eye” to buyers of Iranian oil.
Uncertainties in global energy were highlighted Sunday in a Bloomberg report that the United States may “turn more of a blind eye” to buyers of Iranian oil.
With oil prices up 50 percent in 2022 to almost $120 a barrel, Bloomberg reported a claim from Vitol Group, the world’s biggest independent crude trader, that the US might want to see more Iranian oil flow given mid-term elections looming in November.
Washington has since 2018, with its ‘maximum pressure’ sanctions, threatened punitive action against any third party buying Iranian crude or dealing with Tehran’s financial sector. While this slashed Iran’s exports from 2.5 million barrels per day (bpd) in 2017 to 400,000 bpd in 2020 with many buyers wary of being punished by the US, Iran is now selling around 800,000 bpd, mainly to China, and has developed means of hiding the trade from prying eyes.
Opec+, led by Saudi Arabia and Russia, agreed last week to accelerate output increases and President Joe Biden’s scheduled visit to Riyadh, although postponed until July, may signal an improvement in strained Saudi-US relations even if Riyadh maintains its good relations with Moscow.
But Vitol’s head of Asia Mike Muller told Bloomberg that prospects for the global oil market were confused by constraints on Russian exports and by production weaknesses across Opec. “There are people who think the market’s going to $135-$140 a barrel,” he said. “And there are people who think we’re going below $100 again.”
US gasoline hits $4.80
Analysts and diplomats are sanguine over prospects for renewing the 2015 Iran nuclear deal, the JCPOA (Joint Comprehensive Plan of Action), which would require the US ending ‘maximum pressure’ and lead to an additional 500,000-1 million bpd of Iranian oil reaching world markets.
Iran has around 100 million barrels in storage that could be eased onto the market even more quickly should the US turn a “blind eye” and ‘allow’ Iran to sell more oil. While Republicans and many Democrats oppose easing any Iran sanctions, especially ahead of Tehran returning its nuclear program to the limits set by the lapsed JCPOA, gasoline reaching $4.80 a gallon in the US, up from $3.80 in late February, piles political pressure on Biden and the Democratic Party.
Muller told Bloomberg he did not expect the US seizure of an Iranian-flagged vessel off Greece last month, which prompted Iran to detain two Greek tankers in the Persian Gulf, to signal more US tanker seizures.
Lawrence Norman of the Wall Street Journal tweeted that a well-informed source dismissed Vitol’s report that the Biden Administration might ‘allow’ Iran to sell more oil.
Critics of the Biden administration and supporters of ‘maximum pressure’ have accused the US of being lax in not taking more punitive action against buyers of Iranian crude. Nonetheless, Jason Brodsky, of the advocacy group United Against a Nuclear Iran, dismissed the Bloomberg report as “speculation.”
Iran has one of the world’s cheapest fuel prices, with one liter of gasoline going as cheap as 5 US cents, or around 20 cents a gallon, while prices in other oil-producing regional countries is 10-20 times higher. In Europe, gasoline is almost 40 times higher than in Iran.
The history of subsidized fuel goes back to the period before the 1979 revolution, but since then the government has maintained the ever-growing subsidy, as the gap between prices in Iran and elsewhere has widened. As an oil-producing nation, ‘the government takes care of its people’ – has been the logic of fuel subsidies.
Official estimates in Iran put the total annual subsidy of cheap fuel as high as $60 billion, which is more than the country’s oil export revenues.
Now, the government is once again thinking of raising gasoline prices although officials and members of parliament continue to deny that it will happen this year. Mousa Ahmadi, a member of parliament’s energy committee on Sunday said that lawmakers and the government have not discussed a price increase, although his denial was less than categoric.
Already, in two southern regions the government has been experimenting with higher prices, by offering rationed cheap fuel to everyone, and 50 cents a liter unlimited supplies for those who want to drive more and have the money to pay for it.
A news website in Iran reported Sunday that the government has reduced the number of pumping stations on some highways, forcing drivers who need gas to buy it from road-side dellers at five time the price.
Reducing the subsidy, however, is a risky political move in a volatile domestic environment. Last time the government raised prices in November 2019, nationwide unrest ensued, with security forces receiving orders to fire at protesters. At least 1,500 unarmed people were killed, and the regime’s legitimacy was seriously damaged both at home and abroad.
In addition to the inherent risk, the government already scrapped food import subsidies in early May, which translated into an immediate jump in bread and other food prices. This led to days of protests, which were quelled by deploying thousands of specially maintained “anti-riot” troops, who used force and arrests.
The political environment, however, remains tense and the smallest incident could trigger a new round of protests among 80-million Iranians who have become impoverished over the years, especially since 2018. That was when the United States pulled out of the 2015 nuclear agreement and reimposed tough economic sanctions, especially on oil exports.
The national currency has fallen almost tenfold against the US dollar, with food prices rising by 60 percent in 2021, even before the latest decision to stop import subsidies. Some officials and even the government-controlled media say that tens of millions of Iranians have lost their middle-class status and can be categorized as “poor” because of constant high inflation, topping 40 percent annually.
But Iran’s economic problems are compounded by a growing popular perception that the Islamic Republic governing elite is just inefficient and corrupt, and even many insiders feel less constrained in recent months to speak out.
The only reprieve could come from a nuclear agreement with the US, which would lift economic sanctions, but Tehran has hesitated and the year-long talks in Vienna have stalled.
More people in Iran are concluding that the ruling regime stands at a crossroad – to solve its problems with the United States or continue an anti-West foreign policy and risk more isolation and internal dissent.