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Ayatollah Khamenei

Ayatollah Khamenei, Iran’s Supreme Leader, says Iran’s dependence on crude exports is a “trap” and the country needs to wean its economy off oil revenues.

ISNA reports that in a meeting with Iranian researchers and experts on Sunday, the Supreme Leader said: “Producing wealth from finite resources such as oil is self-deception.”

He added that Iran must reach a point where it can block its oil wells and end the sale of crude products.

Ayatollah Khamenei went on to add: “It is possible to reach such a point by relying on science and the knowledge base.”

Iran produces 4.2 million barrels of oil per day, of which 1.7 million is for domestic consumption.

Oil exports account for about 80 percent of Iran’s foreign revenues. Since U.S. and EU sanctions on Iranian oil took effect in the past month, Iran has had to deal with a significant drop in its oil revenues.

Iranian officials, however, have played down the effect of sanctions. Iranian vice president Mohammadreza Rahimi said earlier: “They do not know Iran, because oil only plays a role in 10 percent of the country’s economy.”

He added that in the past year, Iran’s non-petroleum exports passed $53 billion, and this year there are plans to raise that to between $70 billion and $75 billion.

Despite such statements, reports from Iran indicate that the economy is facing definite challenges, with the Iranian currency flagging and the price of basic goods soaring.

Supreme Leader Ayatollah Khamenei had earlier called for the adoption of a “resistance economy” to overcome the current difficulties by focusing on domestic production.

Yahoo News

07/20/2012

AP – Oil slipped below $92 a barrel Friday, after a big jump the day before, as weak demand was weighed against rising Middle East tensions.

By early afternoon in Europe, benchmark crude was down $1.14 at $91.83 a barrel in electronic trading on the New York Mercantile Exchange. The contract surged $2.79, about 3 percent, to settle at $92.66 in New York on Thursday, its highest level since mid-May.

In London, Brent crude was down $1.02 at $106.78 on the ICE Futures exchange.

The oil market is responding to a series of events that have raised concerns that Iran will try to block oil shipments through the Strait of Hormuz, a narrow waterway in the Persian Gulf through which one-fifth of the world’s oil travels every day. The U.S. and Europe have applied sanctions against Iranian oil exports as they try to wring concessions from Tehran over a nuclear energy program they believe is a cover for eventually producing nuclear weapons.

In the past few weeks negotiations with Iran over its nuclear program appeared to have failed, a U.S. Navy ship fired on a boat in the Persian Gulf and Iran said it has devised a specific plan to block oil shipments. Then, on Wednesday, seven Israelis were killed in a suicide attack in Bulgaria. Israel blamed Iran for the attack, and vowed to strike back. Iran has denied involvement.

Analysts say Middle East tensions could cause further spikes for oil but they might not be long-lasting. The world’s two biggest crude consumers — the U.S. and China — are both grappling with economic slowdowns that are crimping demand for oil. Supplies, meanwhile, are plentiful.

The recent rise in oil prices — the Nymex contract closed two weeks ago at $84.45 — was motivated not only by the higher geopolitical risks, but were also “a correction to the excessive slump” experienced in past weeks, said analysts at JBC Energy in Vienna.

“Very limited global spare capacity on the supply side combined with seasonal upticks in oil consumption … could support further price increases,” JBC said. “On the other hand, lackluster economic news appears likely to put a stop to the recent rally rather sooner than later. Overall, the current price level would fit quite well with our perception of oil market fundamentals.”

In other Nymex energy trading, natural gas was up 0.2 cent at $3.001 per thousand cubic feet. Heating oil was off 2.57 cents at $2.9213 a gallon and gasoline fell 3.63 cents to $2.9026 a gallon.

Bloomberg

By Anthony DiPaola and Ayesha Daya - Jul 15, 2012 8:51 AM PT

Abu Dhabi started exporting its first crude from a pipeline that bypasses the Strait of Hormuz, shipping the fuel to a refinery in Pakistan.

The pipeline, stretching from Abu Dhabi to the neighboring sheikhdom of Fujairah on the Gulf of Oman, was loading the first shipment of 500,000 barrels to the Pakistani plant, Mohamed Bin Dhaen Al-Hamli, oil minister for the United Arab Emirates, said today at a ceremony to inaugurate the network. International Petroleum Investment Co. spent $4.2 billion building the 423- kilometer (263-mile) link, Khadem Al-Qubaisi, managing director of the Abu Dhabi-run fund known as IPIC, said at the ceremony in Fujairah.

Abu Dhabi, the U.A.E.’s capital and holder of more than 90 percent of its oil, built the link as an export route for crude that avoids Hormuz at the mouth of the Persian Gulf. Iran has threatened to block the strait, a chokepoint for tankers carrying a fifth of the world’s traded oil, in retaliation for sanctions targeting the country’s nuclear program. The U.A.E., the fifth-biggest oil producer in OPEC, pumped 2.61 million barrels a day in June, according to data compiled by Bloomberg. Fujairah is one of the U.A.E.’s seven sheikhdoms.

Iranian Response

An Iranian lawmaker, Mohammad-Hassan Asferi, said today the pipeline’s limited capacity would keep it from obviating the need of regional suppliers to export most of their oil through the strait. He dismissed the project as “propaganda and political maneuvering guided by the Western countries, especially theUnited States, which aims to reduce the strategic importance of the Strait of Hormuz,” according to state-run Press TV. Asferi serves on the national security and foreign policy committee of Iran’s parliament.

Abu Dhabi’s first export cargo from Fujairah is destined for Pak Arab Refinery Ltd., a joint venture between Pakistan’s government and IPIC, Al-Qubaisi said. IPIC owns a 40 percent stake in the plant, which regularly uses about 40,000 barrels a day of Abu Dhabi crude, of the 100,000 barrels it consumes daily, he said.

Abu Dhabi earlier shipped a test cargo from Fujairah to its own refinery at Ruwais, inside the Persian Gulf, said Abdul Munim Al-Kindi, general manager of Abu Dhabi Co. for Onshore Oil Operations. As the main oil producer at the emirate’s onshore fields, the company, known as ADCO, will operate the pipeline and gradually expand its capacity by year-end, he said. The network is designed to load tankers at three offshore buoys, Al- Kindi said.

Fujairah’s Expansion

IPIC’s Al-Qubaisi said his company plans to spend as much as $5 billion to build a refinery in Fujairah with a capacity of about 250,000 barrels a day to produce for local sale and export, further enhancing the port’s importance as a hub for the processing, storage and shipment of fuels. The company is working with another state-owned investment fund, Mubadala Development Co., on a project for a terminal at the port for imports of liquefied natural gas. Fujairah is already among the world’s three biggest refuelling ports for commercial ships, along with Singapore and Rotterdam.

Al-Hamli, the oil minister, said the pipeline gives buyers an alternative location from which to receive crude. It will allow them to fill very large crude carriers, or VLCCs, the largest class of tanker capable of carrying 2 million barrels of oil. Filling such vessels in the Gulf of Oman will reduce shipping traffic in Hormuz, he said.

Shipping Flexibility

“The pipeline is going to be beneficial because our clients will be able to lift bigger cargoes,” he said. “Currently you can only lift 1 million barrels a day from Ruwais. From Fujairah now our clients now can bring in VLCCs and lift more.”

The pipeline can transport 1.5 million barrels a day of Murban crude from Habshan, a collection point for Abu Dhabi’s onshore oil fields, across a desert and mountains to Fujairah. The system is able to pump as much as 1.8 million barrels a day at periodic intervals, officials said at the inauguration. IPIC will likely charge ADCO “a few cents per barrel” for use of the pipeline, Al-Qubaisi said.

The first oil exported from Fujairah is priced the same as Murban crude loaded inside the Gulf, three people with knowledge of the matter said this month. Abu Dhabi may later devise a separate formula including a premium to account for the cost of using the pipeline, said the people, who asked not to be identified because the matter is confidential. Abu Dhabi officials today did not comment on pricing.

washingtonpost.com

By Michael Singh, Published: July 8

Predictably, last week’s “expert level” talks between Iran and world powers were no more fruitful than previous rounds, leaving little optimism for a negotiated resolution to the nuclear crisis anytime soon. Western policymakers, buoyed by their success in reducing Iran’s oil exports , appear content to give sanctions more time to work, in the hope that once Tehran feels their full effect negotiators will return to the table, more ready to compromise.

The evidence, however, suggests that sanctions’ effect on oil exports will not increase over time.

First, Western policymakers tend to focus more on what Iran has lost than what it has retained or gained. That’s fine for a political debate but bad for making sensible policy. It is true that Iran’s oil exports have declined from 2.5 million barrels per day to 1.5 million. But that reduced level is hardly meager: Iran is still one of the world’s top oil exporters, from which it earns billions in hard currency. And nothing suggests that the drop in earnings has stunted Iran’s nuclear program, which is the target of Western ire. Iran is enriching uranium faster and to higher levels than ever before. If any party appears to feel a need to compromise, it is the “P5 + 1” (the United States, Britain, China, France, Russia and Germany). They have dropped demands that Iran fully halt enrichment in favor of requesting that it merely cap enrichment at a low level.

Furthermore, the historical evidence does not suggest that sanctions’ effect on regimes grows over time. Numerous examples — including Moammar Gaddafi’s Libya, Saddam Hussein’s Iraq and present-day North Korea — demonstrate that such regimes are resilient and can hold out for a long time in the face of sanctions — and can even adapt to or circumvent them. There is also good reason to believe that states that reluctantly complied with oil sanctions will not make further reductions and may even increase oil imports from Iran as economic activity — and thus oil demand — recovers.Recent data suggest that Chinese oil purchases from Iran have increased despite a dropoff in the first quarter of this year.

So while policymakers may hope that oil sanctions will continue to pay dividends, it is likely that the full effect has already taken hold. If the United States and its allies wait to see which is the case, the result could be a prolonged period of inaction similar to the one that followed the June 2010 passage of U.N. Security Council Resolution 1929 and lasted until Congress and the European Union passed oil sanctions in late 2011. Like any good pugilist, Washington should follow the heavy blow of oil sanctions with further unrelenting pressure.

The most recent sanctions have been so significant because they seized on Iranian dependence on oil-export revenue — one of the regime’s key vulnerabilities. To meaningfully increase the pressure, policymakers should identify and exploit the regime’s other vulnerabilities.

One is Iran’s limited international support. The regime has few true allies. The most important of them is Syria, and bolder international efforts to oust the regime of Bashar al-Assad would considerably weaken Tehran’s position, as would greater emphasis on interdicting arms and funding flowing to and from Iran.

Another key Iranian vulnerability is the regime’s growing internal isolation. The West should not be shy about cultivating Iranians outside the narrow circle around Supreme Leader Ali Khamenei or providing support to dissidents in Iran.

Finally, Washington should bolster the credibility of its military threat. Recent steps to strengthen its force posture in the Persian Gulf are a good start. They should be accompanied by more serious statements about U.S. willingness to employ force and an end to statements exaggerating the downsides of military action. This is likely to garner attention in both Tehran and Beijing. If the alternative is military conflict in the Persian Gulf, China may see further reductions in its Iranian oil imports — which would be the most significant way to strengthen the current sanctions — as prudent.

Western policymakers’ assertions that there is time for sanctions to work are a bit like a marathon runner saying he has plenty of time to finish the race. There may be time, but the latest round of talks’ failure to make progress despite mounting pressure on Iran suggests we also have a long way to go.

REUTERS, 05/07 17:11 CET

SINGAPORE/TOKYO (Reuters) – Iran will see its July oil exports more than halved from regular levels seen last year because tough new Western sanctions are stifling flows and costing Tehran more than $3 billion in lost revenue per month.

Declining oil exports, the lifeblood of the Iranian economy, will increase Tehran’s struggle to contain spiralling inflation and mounting unemployment amid its standoff with the West over its nuclear programme.

“They will eventually have to close down production. Right now it seems very unlikely that they will get any relief from sanctions any time soon,” said an executive with a Western oil firm with a long history of dealing with Iran.

Exports in July will be a maximum of 1.1 million barrels per day (bpd), said an industry source familiar with Iran’s monthly shipping plans and who declined to be named due to the sensitivity of the matter.

Iranian exports have declined steadily from the 2.2 million bpd average in 2011, as its oil buyers cut imports to comply with U.S. and European Union sanctions imposed due to concerns the country is attempting to build a nuclear bomb.

Iran says its nuclear activities are peaceful.

It was estimated to have shipped between 1.2 million and 1.3 million bpd in June, industry sources said last month.

But actual July exports could be even lower as top buyer China disputes freight costs with Iran’s top tanker company, delaying the loading of cargoes set to flow east.

India, Iran’s second-largest oil buyer, could also reduce July loadings as Iran struggles to find tankers of the size Indian refiners require.

Japan and South Korea, among Iran’s top five buyers, have halted all Iranian imports this month due to complications with shipping insurance, also sanctioned by the EU.

Japan is expected to resume buying this year. It has been granted exemption from U.S. sanctions last month after having already steeply reduced purchases.

If Iran exported 1.1 million bpd in July, it would mean the country’s budget losing around $3.4 billion revenue this month compared with a year ago, when exports amounted to 2.2 million bpd and Brent oil prices stood at around $110 versus $100 today.

Iranian oil usually sells at a discount of several dollars to benchmark dated Brent.

DWINDLING STORAGE SPACE

As sales fall, Iran has been forced to store its unwanted crude on tankers in the Gulf and cut production to an estimated 2.95 million bpd, the lowest in nearly a quarter of a century, as it runs out of onshore and offshore storage capacity.

In April, shipping sources said Iran had been forced to deploy more than half its fleet to store oil at anchorage in the Gulf, equating to 33 million barrels.

The country is expected to store at least a further 8.3 million barrels this month, double the amount in June, the source familiar with the shipping plans said.

But as it stores more crude, it may struggle to complete deliveries to Asian customers, who request Iran makes deliveries on its own tankers.

The Islamic Republic is expected to load a maximum of 890,000 barrels per day for its top Asia buyers, the source said, down 40 percent from the 1.48 million bpd taken during the same period last year.

China was scheduled to take a maximum of 492,000 bpd for July loading and India some 300,000 bpd at most.

Japan will load around 98,000 bpd for mid-August delivery, industry sources said. In Europe, Turkey and Italy were the only countries which continue to import Iranian oil after the start of the EU embargo.

Turkey is buying around 160,000 bpd of oil from Tehran, down about a fifth from last year’s average.

This week, Kenya emerged as the potential buyer of up to 80,000 bpd of Iranian oil, but quickly cancelled the deal under pressure from Washington and Brussels.

(Reporting by Luke Pachymuthu in Singapore and Osamu Tsukimori in Tokyo, Peg Mackey in London; Writing by Randy Fabi and Dmitry Zhdannikov; Editing by Simon Webb and David Hulmes)