Iran Loses $133mn a Day on Embargo as Oil Buoys Obama
U.S.-led
sanctions against Iran
are costing OPEC’s third-largest producer $133 million a day in lost sales
without raising global crude prices, handing President Barack Obama an
election-year foreign-policy victory.
Shipments
from Iran have plunged by 1.2 million barrels a day, or 52 percent, since the sanctions banning the purchase,
transport, financing and insuring of Iranian crude began July 1. Annualized,
that would cost President Mahmoud Ahmadinejad’s
country about $48 billion in revenue, equivalent to 10 percent
of its economy.
While
Iran’s threats to disrupt the flow of oil through the Persian Gulf sent crude
to a three-year high in March, increased production from Saudi Arabia, a U.S.
output boom and the slowing global economy have left prices 1.3 percent lower in 2012. That’s helping Obama avoid steeper
domestic fuel costs before the November presidential election. Iran has to
contend with a weakening currency and rising unemployment.
Brent
oil has dropped 4.2 percent to $105.97 a barrel since
Jan. 23, when European Union ministers approved a ban on the purchase and
insurance of Iranian oil. The U.S. is paying 4.6 percent
less than a year ago for imported crude as domestic fields produce the most in
13 years, driving stockpiles to all-time highs, Energy Department data show.
Crude
futures in London rose as high as $128.40 on March 1, an advance of 20 percent for the year, after Iranian officials threatened to
order the closing of the Strait of Hormuz. The Gulf waterway, 21 miles wide (34
kilometers) at its narrowest, is a conduit for 20 percent of the world’s traded oil, according to the
Washington-based Energy Information Administration.
Prices
retreated as Saudi Arabia boosted output. The Organization of Petroleum
Exporting Countries’ biggest producer is pumping more than 10 million barrels a
day, the most in three decades and 22 percent more
than at the end of 2010, according to the International
Energy Agency. The Paris-based adviser to the world’s biggest
industrialized economies cut its forecast for global oil use four times this
year, to 89.9 million barrels a day.
Iran
is exporting 1.1 million barrels a day of oil, down from an average of 2.3 million
in 2011. The lost sales are valued at $133 million a day, based on the 2012
average price of $110.60 a barrel for Iran Heavy crude in Asia.
Daily
output fell 9.5 percent in July to 2.86 million
barrels, the lowest level since February 1990, a survey showed last month. Iran
dropped to third among OPEC’s biggest producers, after holding the No. 2 spot
since May 2000.
Prices
of meat, rice and bread have spiraled in Iran as the rial lost a third of its value against the dollar on the
open market since November. Inflation accelerated to 22.4 percent
in the 12 months through June 20, according to the central bank. Unemployment
reached 13.5 percent in March, the Shargh newspaper reported, citing figures from the national
statistics bureau. The jobless rate was 11.9 percent
in 2010, according to the International
Monetary Fund.
Economic
growth will slow this year to 0.4 percent, from 2 percent in 2011, the IMF said July 16. Gross domestic
product is expected to accelerate to 1.3 percent in
2013, with unemployment set to rise over the two next years, according to IMF
forecasts.
The
international sanctions are “the harshest ever imposed on a country,”
Ahmadinejad said on July 3. Oil accounts for half of Iran’s government revenue,
according to the EIA.
U.S.
and EU sanctions have a global reach, thwarting financial transactions with
Iran’s state entities and blocking insurance for oil shipments to Asia, the
biggest market for Iranian crude. A U.S. law that took effect June 28 threatens
to cut access to dollars for any foreign bank settling oil trades with Iran. China, Japan, India and 17 other
countries received renewable 180-day waivers for reducing imports.
Obama
announced an executive order on July 31 extending sanctions to buying Iranian
petrochemical products, providing material support to the National Iranian Oil
Co. or Central Bank of Iran, and acquiring U.S. bank notes or precious metals
by Iran’s government. The Treasury Department also said the Bank of Kunlun in
China and Iraq’s Elaf Islamic Bank (BELF) helped Iranian firms
conduct transactions worth millions of dollars and blocked the offenders from
the U.S. financial system.
Congress
is set to give final approval to legislation aimed at preventing Iran from
repatriating oil revenue, with measures against everything from conducting
oil-for-gold swaps with the country to helping it mine uranium.
China,
Iran’s biggest customer and an opponent of sanctions, imported
more crude from the Islamic republic in June than it did on average in 2011.
The world’s second-largest oil consumer hasn’t sent any tankers since July 1,
and the government in Beijing hasn’t said if it will insure cargoes.
India,
the third-biggest buyer of Iranian oil before the sanctions took effect, will
start offering state-backed insurance to tankers carrying the crude. Insurers
have agreed to give as much as $100 million of cover per voyage, Shipping Corp.
of India’s chairman, Sabyasachi Hajara,
said without giving a timeframe. Japan, the second largest customer, is already
providing sovereign guarantees and was scheduled to load a second cargo backed
by the state last week.
The
U.S. and Europe are pressuring Iran to stop a nuclear program they say is aimed
at developing arms. The International
Atomic Energy Agency says it has evidence the country studied making
nuclear weapons, for which Iran would need uranium enriched to 90 percent. The nation defends what it calls its right to
process uranium, after achieving 20 percent
enrichment for the first time in 2010. The government says it needs atomic
capabilities for energy and medical purposes.