The Forum for Partners in Iran's Marketplace
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     

January 2019, No. 90


Oil & Gas

New Opportunities versus US Oil Sanctions


As long as Iranian oil is offered at a discount, it will always have buyers, especially in the markets of traditional Iranian importers.


Dr. Mehdi Asali, a senior expert in energy economics and former Iranian envoy to international energy forums and OPEC, answers five questions in which he takes a critical look at mechanisms to tackle the new rounds of oil sanctions against Iran. Asali believes that launching a number of joint companies and banks with Iranís trade partners and bringing them under one network would probably be an effective step that must have been taken long years ago. 

The United States has imposed new sanctions against Iran. What are the solutions to reduce the impact of the oil sanctions?

In my opinion, one solution (the strategies for which can be gradually improved) is that we negotiate with the main purchasers of our oil, namely China, India, South Korea, Japan, Turkey, Italy, Spain, etc. to launch a number of joint companies and private banks. This can be backed up by the joint chambers of commerce.

For example, Iran-China Alpha (Energy) Company, Iran-India Beta (Energy), and others can share ownership 50-50 or other figures depending on the rules of the trade partner country (for example, 90% Iran, 10% India, etc.) But the business of these companies could be trading oil and energy, goods and services between Iran and other countries such as China and India, and so on. Because such a company is basically focused on trade between the two countries and does not have commercial relations with the US, it cannot be affected by the US sanctions. They can import Iranian crude oil, gas and gas condensate from Iran and export goods required by Iran.

On the other hand, since the US sanctions are not endorsed by the United Nations, the governments of China, India, and so on. would not oppose the operation of these companies because it would create jobs for them and companies would pay taxes to governments. Now, these companies can buy crude oil from Tehran Energy Bourse and store them in oil depots in target countries. This work is welcomed by the oil-importing countries because they provide energy security without paying any costs.

On the other hand, these companies can buy part of the shares of the refineries belonging to their trade partners and refine the crude oil they buy from Iran in these refineries and sell them to retailers who have no deals with the US, or even invest in some of their retail outlets.

In China, there are small refineries known as Tinpot refinery. These joint-stock companies can buy the stocks of a number of these small refineries. In addition to small refineries, they can gradually buy or create a chain of petrol stations that can operate in major cities in China or India, and so on.

To make these companies competitive, the National Iranian Oil Company (NIOC) can supply crude oil to these companies at a discounted rate, and they can rebate the discount plus tax after they reach the stage of profitability. 

Are Iranian officials right in predicting that Iranís oil exports will not fall to zero?

 As long as Iranian oil is offered at a discount, it will always have buyers, especially in the markets of traditional Iranian importers. The rest depends on the readiness, intelligence and effective measures of the private sector and the negotiations of the Foreign Ministry and the joint chambers of commerce with their counterparts in an attempt to eliminate the risk of secondary US sanctions against oil importers from Iran by creating joint companies. I really do not see why this does not work. Because these sanctions are not approved by the UN and we should only try to eliminate the risk of secondary sanctions against the importing companies. The solution to this problem too is the creation of bilateral or multilateral joint ventures that are solely focused on trade between Iran and these countries and would not have any transactions with the US.

As a result, they would stay immune from the effects of the sanctions and Iranís oil exports too would continue. The remaining issue is the transfer to Iran of foreign exchange from the oil sale, which can be solved through the establishment of joint and multilateral financial institutions under the supervision of central banks of Iran and the other country. Of course, instead of the US dollar, these financial institutions should use the euro and other strong currencies such as the Chinese yuan, the Swiss franc, the British pound and the Japanese yen. I think with these credible currencies in the current situation we will be able to import almost every commodity and service. The world outside Iran is not confined to the US alone; the US economy, according to the latest IMF report, is only about 15.3 percent of the global economy. Although the US dollar is the reserve currency (about 60 percent) and the worldís major trading currency, but this can also change in the future with the advent of currencies such as the euro and the yuan. 

Iran intends to turn the stock exchange into a pricing body in the region. How much is this goal achievable?

In order to be able to create a distinctive oil bourse, certain conditions must be provided that are not currently available in the country. That is conditions that exist for example in the London Stock Exchanges (AIS for Brent) and New York (NIMEX for WTI), which are not comparable to ours.

The commodity markets are shaping up where several important factors have been provided. Firstly, the rules and regulations of the country are fully compatible with international laws and regulations; a country that is still not a member of the WTO and whose financial markets are still not among the signatories of the anti-money laundering and anti-terrorism regulations, its currency market is very fluctuating and due to the threats of the big powers regarding escalation of the sanctions, there is not trust and no one would make investment or do business.

Furthermore, the commodity market requires high liquidity and a significant number of reputable suppliers. Since the production and supply of Iranian crude oil is the sole monopoly of a company, the (NIOC), which is a state-owned company that has been deciding and acting not by commercial considerations but by political orders (through the Ministry of Petroleum, etc.), buyers are reluctant to have their contracts with this company, although contracts have also been signed by the NIOC chief. Decisions are made at levels higher than the CEO of the company and are just communicated to him.

Also, the commodities supplied on the stock exchange must be fully standardized so that the characteristics of different shipments are fully identifiable and priced based on market information and other factors.

None of these conditions exists in the country at present; the most important conditions for the inadequate development of international stock markets in Iran are the high risk of the country and the incompatibility of Iranís trade, financial and economic regulations with the world.

If you look at the World Stock List, you can see that the Tehran Stock Exchange (TSE) is still not on the main list of stock exchanges (while Turkey and Malaysia, the UAE and Saudi Arabia, etc.) are listed on the stock exchange. And these issues make it harder for Iran to become a bidder in the region.

 

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  January 2019
No. 90