Current Events

Hamsade

You can take a man out of Iran, but you cannot take "Chak o Chooneh" out of him!

faramarz, chak o chooneh

faramarz, chak o chooneh zadan with esfand is like the storyline of "if you give a mouse a cookie."  it all started with a notion that there's no way iri's lack of oil export can be made up by other exporters.  now, you have to explain about liens on contracts, lloyd's freighter insurance and so on.  at the end, it'll be about iri's exports (again) for which all of it will someow be sold in the market anyway, at deep discount prices.

Contract Issues

I don't mean to keep clarifying things on this topic, but I am trying to keep the emotions out of this.

If a company breaks a contract pre-maturely, they can be liable and be sued and a decision may be rendered against them. But I assume that these types of things like UN mandates or decisions by the US Congress are regarded as "Force Majeure" that relieves both parties from liabilities. 

Contract issues.

I wonder what's in those oil contracts.  If you stop buying oil from us you can never buy from us again! 

It's nice to know that when it comes to oil embargos they care about contracts and try to do it nicely and politely!  We want to remain good friends!  It's all tarof and things will work out fine.  Inshallah! 

Everything is sacred

you're right esfand. 

you're right esfand.  something had to give and all the enemies the iri (the west, arabs, israelis) have obliged to expedite the collapse for iri.

and may i add that you're right again in not muddying up the conversation by bringing the economic malaise of spain, greece, u.s., or other nations as it pales in comparison with the systemic corrupt policies of iri.  not to mention you may be accused of "zin shaakheh be aan shaakeh paridan." :)

A Couple of Points Esfand Jaan

Buying oil by a refinery or a country for that matter is not like you and I driving down the street and check the gas prices at Shell or Chevron and fill the tank. These companies/countries have contracts with the IR Regime that they need to get out of. Then they need to find new suppliers and get into new contracts and negotiate good prices. So it takes a few months to get there. That’s why they are getting exemptions from the US so that their interests are not compromised. But the message is clear. The western countries will reduce their purchase of Iranian crude to 0.

Also, nothing big will happen on July 1. The actions have already been taken and more will come in the months to come. The only thing that is important on July 1 is that if Chinese companies are found to be in violation of the sanctions, they will get fined. That’s provided that they do business with the west. If they don’t, then nothing will happen.

The message of the sanctions is very clear. If you want to do business with us, you can’t do business with the Regime.

You don't have to be IRI to screw up your economy.

I am not of the opinion of comparing Iran to US or other countries or injecting Israeli-Palestinian conflict into an Iranian discussion.  However, in this case of ruining an economy due to bad policies, Iran is not alone.  Mind you they've screwed up the economy under international sanctions.  Wonder how Greece, Spain or Argentine would have fared with sanctions hanging on.  Read Argentina clamps down on public access to US dollars.

Elsewhere I have argued that the economic policies of Islamic Republic will eventually catch up with it.  The 20% inflation, cash subsidies to people and not producers (first phase and no second phase), high unemployment, sanctions and others can't go on forever.  Something will have to give.

However, oil embargo on Iran is not a one way deal.  OPEC and oil cartels will "fix" it for "us"!

 Everything is sacred

i agree with you esfand. 

i agree with you esfand.  on one thing: "Nobody is worried about Iranian people's welfare..." 

it's good to put the issues in perspective.  every government's responsibility and mandate is to its constituents, namely their citizens.  each government tries to maximize the welfare of its own citizens.  or at least should.  the u.s. is devising policies in its own interest.  however, the undemocratic iri devises policies to stay in power regardless of the welfare of its citizens.  therefore, your statement is a no-brainer.  that's why trita tries to scare the american public by saying that sanctions results in higher gas prices (meaning u.s. policy is adversely affecting u.s. citizens; not a welfare-maximizing proposition).  so far his prediction has not come true.  on the other hand, we're seeing what iri's policies has done to the iri economy over the past thirty years.  only during the past year, the currency has devalued from 1000 toman/$ to 1700 toman/$.  this is before sanctions taking full effect!

a few morsels for thought: 1. u.s. started exporting (not importing) refined petroleum (e.g. gasoline) only 4 years ago and is expected to export as much as 1 million barrel/day this year.  2. iri imports (not exports) 40% of its refined petroleum.  their refineries mostly produce low-level products for domestic consumption. why is iri investing in nuclear energy/weapons? and not their oil refining infrastructure?  i think i know the answer and is not because of economic expediency.  3. u.s. is sanctioning countries that export refined petroleum to iri (including israeli shippers!). 4. if faramarz's number is correct that iri exports only 1.5 mb/day, then iri's global portion of exports is much less than the 5% i stated. 5. in all liklihood, countries that are getting exemptions need time to change their suppliers and get favorable rates not to mention that all countries have long-term contracts with their suppliers.  6. it's good to consider both consumption and production of each country for each type of product (raw vs refined) as well as distinguishing between production and exports/imports.  7. i'm not in the speculation business, but a good indicator in the effect of full sanctions will be the value of iranian currency in the coming months.  8. god have mercy on the people of iran because its iri that is doing it to them. other countries are acting as rational welfare-maximizers (for their own citizens, of course).

If there is an oil glut why exempt 7 countries?

Since it's so cheap and easy to buy oil why bother exempting these 7 countries and instead just show them where they can buy cheaper and easier oil?

There is an oil glut but it is the same as last year.  Since the 1 year oil trend still at higher prices than last year.  Sure they don't want to deflate oil prices but as far as production the Saudis have been unilaterally increasing productions even before this Iran oil embargo.  Russia as another example can and will benefit from an Iranian oil embargo with it's own production increase. 

Nobody is worried about Iranian people's welfare and when it comes to oil everyone is covering their own behind.  It's like a gamble with all the chips on the table.  Who knows perhaps Wall Street will somehow make it worthwhile for Iran to cheat the system, which reminds me of that scene in Other People's Money (1991) when Danny Devito waits for others to give their speech and then when it was his turn he said: For even if the prayers were answered and a miracle occurred . . . and the yen did this and the dollar did that . . . and the infrastructure did the other thing, we would still be dead."  For full speech see here.

Bottom line it's a prayer that an oil embargo on Iran will only affect Iran and the Yen won't do this and the Dollar that and the Europe the other!

 Everything is sacred

Global Oil Glut - A Chance for the People of Iran!!

This may be a unique opportunity for the Iranian people. Even though the basis of these sanctions is bogus (i.e. the nuclear 'excuse').

Contrary to some of the comments made, it is in fact true that there is a serious over supply in production capacity for oil - globally.

Iraq's oil production has hit over 3 million barrels a day projected to rise to 10 Million barrels over the next 5 years - with BP, Shell etc. fully partnered in that production. Remember Iraq was near zero even 3 years ago.

Azerbaijan is upto 3 Mn + barrels a day; almost doubled these past 3 years.

Brazil is pumping out record output (over 2 Million barrels), the Soviets are up significantly. Canada's energy and oil exports have grown considerably past few years.  Israel will soon become a net exporter from its Levant Fields ...and will likely go far beyond that when they absorb Lebanon's fields (soon).  I could go on and on.

But global demand for oil has dropped too. US is importing 2 million less barrels a day now versus 3 years ago. Europe is in an economic mess and importing less - much less. China's growth is slowing down considerably. Demand globally is dropping -- and will remain depressed for the next few years. There is a global glut of oil!!

Remember, when UK's North Sea oil came on stream in full force in the late 70's and early 80's - Iran's production "amazingly" went to zero (the revolution and then the Iraq war...).

No-one has any interest in protecting Iran's oil production quotas (no super-power, nobody..). If oil production has to drop - Iran's oil will be the first to be shut off.

Right now they need to maintain the price of oil (not let it drop too low) but also not let it get too high. War with Iran would be bad (drive up prices) but allowing too much production would be bad (because they need steady inflationary pressure to get themselves out of this financial mess with sovereign debt and real estate debacles across Europe and U.S.).

This may be a unique opportunity for the people of Iran, even though the basis for these sanctions is bogus (i.e. the Nuclear dispute). There is plenty of supply now, so this is really the first time the "world" could act and put heavy sanctions on oil in Iran. I think tight economic sanctions would be best and they are what all opponents of the regime in Iran have advocated for decades. Hopefully (from an Iranian "people's" point of view) Iranians will be put under enough pressure to invade the streets and force the regime to collapse internally. I wonder how far these sanctions can go - before the regime collapses?

This may be wishful thinking ... I still think the Mullahs are truly what they (the West)  really want in power in Iran ...  After all who would give them a better excuse/opportunity/carte-blanche and shut-off" Iranian resources (while they exploit Iran's portion of the Caspian Sea etc.)??

My own opinion is that this policy of "containment" and "shut-off" should get lifted after regime change (if that happens) and that the "world" would be much better off with an engaged and dynamic Iran - acting as a hub (along with Turkey) in Central Asia - creating the climate for major regional growth and a major new market for global exports etc. A vibrant Central Asia could lift the world out of its current economic mess!!

mr hamsadeh: not an expert, maybe, but a darn good comment

from you sir!

one other thing; the oil prices are currently at historicaly low levels (compared to other minerals,  commodities & industrial products). this is primarily thanks to the islamist republic! "we at tel aviv" & saudis at jeddah  know that & believe this is partly why US is dragging her feet on the simple matter of the regime change in iran.

We'll find out soon enough.

There is no sense talking percentages like US oil consumption is 25% of the world consumption and Iran contributes 0% to it.  We'll find out soon enough.  June 28th is not that far off, even with 7 exemptions.

 Everything is sacred

although i'm not an expert

although i'm not an expert in the oil markets, i can offer a few insights and point out to some logical fallacies committed by esfand jan.  

"Iran is among the top 3 or 4 largest producer of oil in the world and you simply cannot take Iranian oil out of the world oil market and expect the markets and coutries to not feel the effect." 

iri's contribution to the oil market is less than 5% (4.8% in 2009; i'm guessing lower now); even though, that they are about the 4th largest crude oil producer in the world.  we can observe that oil-producing countries have increased their output to adjust for potential lack of iri oil.  how long can they do it?  well, how long can iri survive without significant cuts in oil revenue?  you can't answer one question without answering the other.

"Its basic economic, supply and demand.  In a market with high demand you reduce the supply and the price goes up.  Especially in this bad economic times for the entire world."

the economics of oil is not as simple as the introductory "supply and demand" economics course.  the "supply and demand" economics refers to competitive markets.  oil economics refers to price setting actors who behave strategically in a cartel (e.g. opec) (non-competitive markets).  furthermore, the statement above concedes that currently we (u.s. and e.u.) are facing bad economic times.  during bad economic times, the demand for oil goes down as economies contract; hence, the oil cartels and independent oil producers adjust their supply accordingly to stabilize the oil prices. when oil supply is not cut during economic downturn, oil prices goes down.  we've seen as a policy (and a lesson from arabs to iri), they've incresed their supply in face of bad economic times for the west; hence, oil prices have gone down drastically.  in effect, oil-producing countris are willing to take a loss in the short-term to punish iri.

"Expecting Saudis and UAE and others to replace the Iranian oil is like asking someone to work 27 hours per day!"

not so.  saudi arabia, alone, can raise its production by 25% immediately.  if other arab states follow suit with saudi arabia (which they usually do), the gap can be filled.

furthermore, as with any rules and regulations in the u.s., there are always permanent exemptions and temporary exemptions.  temporary exemptions are a way of phasing in entities that cannot withstand the burden of a regulation (or policy).  it's customary to give 12-months, 18-months, or 24-months exemptions.  the 6-month exemption, to me, is a signal of urgency.

disclaimer: i'm not an oil expert like most of you.  much of my information came from the recent "oil market report" of "international energy agency," western and arab media, my standard economic knowledge, and here and there references.

1.5 millions barrels per day is still 1.5 millions barrels.

Faramarz jaan the oil "production" is not always the same.  OPEC is a monopoly and as such has been inreasing and decreasing production to meet the desired prices since inception.

This regime and Iranian people at large will suffer, yes, but so will the world.  This is not like firing an employee!  It's just who will back off first.  Those imposing oil sanctions are betting on Iran to budge and I don't.  I think the world tolerance is much weaker than Iran, these exemptions an example.

OPEC is not going to increase production to lower prices.  It'll at best "try" to stablize the prices but as I said before oil markets are never stablized.

As I said we'll just have to wait and see.  I am all in favor of this regime being changed but I'm afraid some of these policies will have another undesired effects. 

Everything is sacred

Esfand Jaan

You are putting me to work this morning!

But since we are all eager learners here is an article on Iraqi oil exports which is now at 2.5 million barrels per day, surpassing Iranian exports which were 1.9 million before the sanctions and now is estimated at less than 1.5 million barrel per day.

//www.nytimes.com/2012/06/03/world/middleeast...

The Chinese have come up with schemes to bypass the sanctions on oil trade through Iranian Central Bank by paying by Yuan into accounts in China that is controlled by the Chinese but owned by the Regime and also using bartering of goods in exchange of money.

Again, all of this means that the Regime will have a lot less cash to spend on its nuclear, missiles programs and its adventures in Lebanon, Syria, Gaza and Iraq.

Working 27 hours/day

Faramarz jaan thanks for the NY Times article, the AFP didn't have the 6 months note.

Still.  At $82 per barrel I wouldn't call the oil market stablized and/or cheap.  Oil markets have never stablized, they've always been going up and down but mostly up from inception.  I wouldn't call $3.60 per gallon of gas, cheap.  Cheaper than $4 (psycological) per gallon but not cheap.

This to me is very much like the 1980 US grain embargo against Soviet Union (law of the land) during the Carter administration which resulted in severe farm crisis for US.

Now I will not go as far as saying there is a conspiracy by the oil companies to lobby Congress to pass such oil embargo legislations to manipulate the markets (gasp) but the effect is clear.  The price of oil will go up.  Iran will get hurt (as it is already) but the price of oil will go up.  Saddam sold his oil despite the sanctions and under the no fly zone and naval inspections.

Expecting Saudis and UAE and others to replace the Iranian oil is like asking someone to work 27 hours per day!  It reminds me of Saturday Night Live and Will Ferrel when he portaryed W that he said he works 24/7.  That's 24 hours per week and 7 months a year!

"New" Iraqi oil?!  Libyan oil?! With all due respect Faramarz jaan Dick Cheney and his deputy once said that Iraqi oil will pay for the war and reconstruction with profits to share and lower oil prices for the entire world!

We'll all find out soon enough.  For now 7 exemptions were granted which doesn't seem too promising. 

Everything is sacred

Here are the details

Here is today's article from NY Times that describes the situation with China.

//www.nytimes.com/2012/06/12/world/middleeast...

Actually the world markets have already factored in the absence of Iranian oil and its replacement by Saudi, UAE oil as well as Libyan and the new Iraqi oil. 

And guess what, the price oil today is $82, and not the $250 that the Regime and NIAC had predicted.

As for China, US is trying to negotiate an agreement so that we don't get into a trade issue with them.

The oil sanctions are the "Law of the Land" here. The only tool that was given to Obama was 6-month exemptions to safeguard the world markets against price increases, if needs be. At $82 per barrel, there are no shortages.

Faramarz jaan what six months? China will be exempt as well.

Where do you see that these exemptions are 6-months only?  The link to the article says nothing about 6-months.

Besides, you know what, this is like going to a car dealer and trying to trade you car for a newer model.  The dealer either gives you a low price on your old car or increases the price of the new car.  It's like a balloon, you press one side and the other side will get bigger.

The reason the price of gasoline has gone up in the past few years (since Katrina really) is because the demand is too much now.  Countries like China and India (now exempt from oil sanctions) are using oil like crazy. 

Iran is among the top 3 or 4 largest producer of oil in the world and you simply cannot take Iranian oil out of the world oil market and expect the markets and coutries to not feel the effect.  Its basic economic, supply and demand.  In a market with high demand you reduce the supply and the price goes up.  Especially in this bad economic times for the entire world.

China will be exempt as well.  US cannot sanction China when it has the most favorite trade status with the US.  From the article: "US officials have said that Washington remains in talks with Beijing over the issue, AFP news agency reports."

It didn't even take to June 28th for the "Iranian oil sanction" to take hold!  I know it's a wet dream but it aint gonna happen.  Maybe it "should" but it won't happen.  So time for another kind of wet dream!

Everything is sacred

No Exemptions for China

The purpose of these 6-month exemptions is to give the countries that have drastically reduced their purchases of Iranian oil more time to find other suppliers and negotiate other deals to completely end their purchase of Iranian oil.

China, who initially cut back its purchases of Iranian oil, got cut-price deals from the Regime and has purchased more Iranian oil recently. That's why the US is dealing with them separately.

The net effect is that there is less Iranian oil being sold at lower price, providing less revenue to the Regime.

7 exemptions! So much for holding the line on oil sanctions!

Everything is sacred