Iran gets creative to beat sanctions

ID : N-3112 Date : 2018/10/10 - 13:24

(Persia Digest) - When Donald Trump’s sanctions hit Iran’s oil exports next month, the Islamic republic will not just scramble to find alternative revenues to provide an 80m-strong population with medicine and other vital commodities. Tehran is also keen to make sure the president of the country they call the “Great Satan” fails in his goal to shut down Iran’s main economic lifeline, reports FT.

“Trump must and will definitely suffer an embarrassing failure by not being able to bring down Iran’s oil exports to zero,” said a senior energy businessman close to the regime. “We will achieve this even if [we have] to barter crude for Russian weapons or store our crude in Malaysia and Thailand.”

Iran, which derives a large part of its foreign currencies and state revenues from oil exports, is seeking creative ways to sell its oil ahead of the reimposition of US sanctions on November 4. At stake are Iran’s hopes of maintaining some leverage in negotiations with the Trump administration. Insiders believe any talks with Washington could only happen once Iran has shown it can withstand the new sanctions and, as a result, not have its hands tied at the negotiating table.

Plans under consideration to circumvent the sanctions include an initiative to revive “middlemen” who would be allowed to buy barrels of crude through a domestic energy exchange, or “bourse”, and sell them in world markets under the guise of Iran’s “private sector”. Established in 2012, the bourse has not traded oil since at least 2015, when Iran agreed to curb its nuclear ambitions in exchange for the lifting of crippling international sanctions.

The measure is a sign of how desperate the regime is to maintain even the smallest amount of oil exports. Babak Zanjani, a local businessman, is facing a death sentence for refusing to pay back $2.8bn worth of crude he sold to Asian buyers and never paid back the state under the previous sanctions era.

 “Selling crude through the energy bourse is more symbolic to show that Iran is diversifying channels to sell crude and its determination to circumvent sanctions,” said Saeed Laylaz, a reform-minded analyst of Iran’s political economy. “In practice, however, anyone who cannot buy crude from the National Iranian Oil Company would not buy it from those affiliated to the armed forces, either, unless Iran decides to create other Zanjanis.”

The punitive measures against Opec’s third-largest oil producer are expected to be more harshly felt than a first wave of economic sanctions imposed in the wake of Mr Trump’s decision in May to withdraw from the 2015 Iranian nuclear accord. Iran’s ability to more than double its oil exports following the Vienna agreement helped the Islamic republic drag itself out of a deep recession and rein in 40 per cent inflation.

Tehran politicians say they have been encouraged by Britain, France and Germany, the other nuclear deal signatories, who have sought to set up a financial mechanism to help Iran to continue to export oil to Europe and Asia.

“European governments’ support umbrella will embolden companies — in particular those which do not have interests in the US such as small- and medium-sized companies — to help Iran sell crude,” insisted Mohammad Ali Khatibi, who was in charge of selling crude under the previous sanctions in 2011 and 2012. “This era [of sanctions on Iran’s oil] is not going to last too long. In the worst-case scenario we will sell at least 1m bpd,” he added optimistically.

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Experts outside Iran believe this is an upbeat view, as the mere threat of US sanctions has already deterred foreign oil companies such as Total from doing business with Iran. Iranian analysts and western diplomats in Tehran now estimate that Iranian exports will stay above 1m barrels per day, down from the peak of 2.8 mbpd earlier this year.

Iranian politicians also believe that Saudi Arabia will not be able to completely offset a decline in oil supply from Iran, despite US pressure to do so. “Such nonsense may satisfy Mr Trump but the market will not believe them,” oil minister Bijan Zangeneh told news agency Shana on Monday. The rise in oil prices to above $85 a barrel suggested oil traders anticipated a supply crunch, he said.

Iran largely pins its hopes on China, its top customer, which is in a trade war with the US, and has so far continued to import Iranian oil, albeit at lower levels. Analysts also expect India, Iran’s second-largest importer, to try to please both the US and Iran by decreasing its purchases without ceasing them completely. South Korea, a major customer, has however suspended imports.

Middlemen will also help, Mr Khatibi insisted, adding they would probably start trading small physical consignments of 50,000 barrels in auctions. By comparison, a supertanker carrying oil to Asia typically carries 2m barrels.

“We will use our own insurance system and our own tankers at our own risk to hand over crude to our clients,” Mr Khatibi said, as opposed to the US-dollar-dominated shipping and insurance mechanism. “We used the same mechanism in the previous sanctions which were even more difficult when Europe, the UN and US were all in the same front [against Iran]. These sanctions will be easier to handle.”

Iran is not solely looking into its oil sales options to secure foreign currencies and make up for shrinking petrodollars. Iran’s Supreme Council for Economic Co-ordination, which was established this year to make major decisions under the current “economic war”, decided last week to grant residency permits to foreign nationals who invest $250,000 in Iran — the first time that Iran has approved investment-based residency.

“Under the pressure of sanctions, Iran feels forced to go crazy,” said a regime insider close to hardliners.

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