First delivery of 1Mbbl of Iranian crude has reached Russia in mid-November with hopes of accessing the world markets via ‘’Promsyryeimport’’ foreign trade organization, under an oil-for-goods barter agreement, Iranian Oil Minister, Bijan Namdar Zangeneh, said last week. According to the swap deal officially concluded in late May 2017, Iran aims at selling around 100,000bbl/d through this authorized, Russian-owned industrial feedstock importer, amounting to a total of $2bn/y at present prices. As stated by Mr. Zangeneh earlier this year, Russia is going to pay for 50% of the Iranian oil consignments in euros, while remaining 50% is going to be used to finance imports of $45bn worth of Russian goods.
The recently signed contract forms part of a scheme between the two countries dating back to 2014, when Tehran aspired to send up to 500,000bbl/d to Moscow in exchange for Russian goods and equipment, in order to minimize the impact of Western sanctions imposed over its nuclear program. Within the agreement, the two parties have made clear their mutual purpose to lessen dependence on the US dollar. Furthermore, the oil-for-goods program plans to help alleviate pressure on Iran’s long isolated energy sector by gradually restoring the country’s ability to approach international oil customers and develop its resilience, despite the pessimism that has been sweeping the oil markets throughout the last three years.
It should be borne in mind that Russia has offered to oversee the particular oil barter deal amid the newly worsening US-Iranian ties, following current administration’s decision to decertify the Joint Comprehensive Plan of Action on Tehran’s nuclear program, adopted in 2015 by Iran, the P5+1 member-countries and the European Union. It is said that, through the program, Iran will manage to cover domestic needs as far as industrial and agricultural equipment and electrical power supply are concerned. The country also considers the possibility of developing its national oil deposits by taking advantage of the Russian energy firms’ technical know-how, although no such accord has been worked out yet.
For the time being, LUKOIL has declared its readiness to enter Iran’s oil and gas industry, as long as promised investment-friendly legislation amendments are introduced by the government. Moreover, future swap operations between the National Iranian Oil Company (NIOC) and Rosneft might solve the latter’s problem regarding crude deliveries to an oil refinery in India’s Vadinar, acquired by the Russian oil major from the Indian refiner Essar Oil in August. For this reason, Rosneft has already agreed on oil purchases from Northern Iraq’s Kurdistan Regional Government up until 2019, however the Iranian alternative appears far less politically risky at this point.
Finalization of the Russian-Iranian initiative coincided with Tehran’s decision to resume oil swap with Caspian neighbors, halted during former President Mahmoud Ahmadinejad’s tenure because profits were deemed inadequate. The resumption of this sort of operations has been marked as priority by the Oil Ministry since 2013, after election win of the moderate President Hassan Rouhani.
Iran has concluded and implemented several oil swap deals with Azerbaijan, Kazakhstan and Turkmenistan since about the late nineties and has also constructed a 272km-long oil pipeline that links its Caspian port of Neka with refineries in Tehran and Tabriz. The daily swap from 1997 to 2009 averaged at 90,000bbl/d, allotting Iran some $880M from transit fees, and it was planned to rise up to 500,000bbl/d by 2015. At the time, Azerbaijani, Turkmen and Kazakh deliveries used to reach the Neka oil terminal and from there on Iranian Oil Terminal Co. was responsible for transferring them to the Tehran and Tabriz refineries. Afterward, Iran would supply the Caspian littoral states with equivalent oil volumes from its ports on the Persian Gulf.
Iran is, therefore, equally interested in restarting oil swaps at a capacity of 500,000bbl/d with the rest of fellow Caspian countries, providing there will be enough crude, in order for the cost of oil deliveries to refineries in the country’s North to be decreased, as at the moment those refineries are mostly supplied with oil from its southern fields in the Persian Gulf.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-december-6-2017/#4
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