Iran's Oil and Its Biggest Consumers

Kinga Szurc

Iran was the fifth-largest crude oil producer in OPEC in 2021 and the third-largest natural gas producer in the world. At the end of 2021, Iran accounted for 24 percent of oil reserves in the Middle East. As Iran is a member of OPEC, it is exempt from the production cuts under the OPEC+ agreement. Petroleum exports are a significant source of government revenue in Iran. As of 2022, total crude oil distillation in Iran was more than 2.4 million barrels per day while Iran’s government plans to increase the country’s refining capacity to 3.5 million barrels per day by 2026. Although Iran has proposed several projects that are in various stages of planning and development, international sanctions on Iran have hindered some of the investment needed to complete these facilities within the next few years. [1]

Iran has a vast potential in renewable energy sources, submitted mainly by private investors. The Iranian Energy Ministry and the Renewable Energy and Energy Efficiency Organization (SATBA) signed a memorandum of understanding with unspecified private investors to implement the plan and announced their intention to allocate around IRR30 trillion ($71.4 million) in the next budget law to move forward with the first projects. [2]

1 “EXECUTIVE SUMMARY”, U.S. Energy Information Administration, era.gov, https://www. eia.gov/international/analysis/country/IRN. DOA: March 26, 2023.

Tehran‘s oil exports have been limited since former U.S. President Donald Trump in 2018 exited a 2015 nuclear accord and reimposed sanctions aimed at curbing oil exports and the associated revenue to Iran‘s government. In 2022, though, the country‘s oil exports reached a record high.

2 E.Bellini, “Iran wants to deploy 10 GW of renewables over the next four years”, pvmagazine. com, https://www.pv-magazine.com/2022/01/03/ iran-wants-to-deploy-10-gw-of-renewables-overthe-next-four-years/. DOA: March 27, 2023.

China is Iran‘s biggest customer. To evade sanctions, most of Iran‘s crude exports to China are rebranded as crude from other countries, according to analysts including FGE. Iran in the past has said documents were forged to hide the origin of Iranian cargoes. In addition, Iran last year expanded its role in Venezuela, also under U.S. sanctions, sending supplies of light oil for refining and diluents to produce exportable crude grades. [3]

Due to economic sanctions and inflation, the Iranian government has boosted oil sales to China at a highly discounted price. Iranian oil reaches the Chinese market through a camouflaged system of delivery. “The Iranian regime is now very experienced in bypassing sanctions that it is also doing it for Venezuela or even Russia,” according to Mahdi Ghodsi, an economist at the Vienna Institute for International Economic Studies. Iran’s oil production reportedly hit a 30-year low in 2020 because of intensified U.S. sanctions as well as the economic impact of the global COVID-19 pandemic. “Iran‘s oil revenues fell from $100 billion to $8 billion a year after the U.S. withdrew from the Joint Comprehensive Plan of Action, also known as the Iran nuclear deal,” said Umud Shokri, an analyst of global energy affairs.

3 A. Lawler, B. Sharafedin, C. Aizhu, Iranian oil exports end 2022 at a high, despite no nuclear deal, reuters.com, https://www.reuters.com/business/ energy/iranian-oil-exports-end-2022-high-despi-nonuclear-deal-2023-01-15/. DOA: March 28, 2023.

“Iran offers steep discounts for its oil — likely even steeper than a year ago given the new competition with Russian crude — to persuade Chinese refiners to accept the risk of dealing with sanctioned Iranian entities,” said Henry Rome, a specialist on Iran sanctions and economy with the Washington Institute for Near East Policy. To camouflage transactions with Iran, China uses a barter trading system in which oil is exchanged for Chinese products including medicine, light machinery, and food items. [4]

Tankers in Iran‘s “ghost fleet” also have switched to carrying Russian oil. They easily disguise their ownership and movements to facilitate breaches of sanctions and trade oil. Russia offers higher rates to tanker operations to protect its oil revenues. [5]

A. Dawi, „Iran Boosts Cheap Oil Sale to ChinaDespite Sanctions“, Voa news.com, https://www. voanews.com/a/iran-boosts-cheap-oil-sale-to-chinadespi-sanctions-/6935635.html. DOA: April 2, 2023.

Iran‘s representative to OPEC has predicted that the oil price may soar as demand in China rises. The International Energy Agency said nearly half of the forecast rise in oil consumption this year would come from China. [6]

“China is trying to translate its economic power into political power,” Nasser Hadian, a professor of political science at the University of Tehran, told The Iran Primer.“Iran is very important as a source of energy, but also as a provider of the security in the region. In the future, Iran and China are going to be very closely interdependent,” he added.

President Raisi hosted Chinese Defense Minister Wei Fenghe to improve strategic defense cooperation. The two countries reportedly agreed to collaborate on military strategy and engage in joint military drills and training. Consequently, there is something more in addition to oil that brings China and Iran together. [7]

Kinga Szurc May 2023

5 Ch. Cook, D. Sheppard, „Iran‘s ’ghost fleet’ switches into Russian oil“, Financial time.com, https:// www.ft.com/content/955389bf-d01b-4acb-bd15b764425a8a18. DOA: April 2, 2023.

6 A. Dawi, “Iran Boosts Cheap Oil Sale to China Despite Sanctions”, Voa news.com, https://www. voanews.com/a/iran-boosts-cheap-oil-sale-to-chinadespi-sanctions-/6935635.html. DOA: April 2, 2023.

7 “Iran’s Increasing Reliance on China”, Iran primer. using.org, https://iranprimer.usip.org/blog/2019/ sep/11/irans-increasing-reliance-china. DOA: April 2, 2023.