COMMENT: Sanctions would help Iran solve its gasoline problems

[Joanne98]

Feb 15, 2010
By Sara Vakhshouri-Bellenoit

A close analysis of energy markets and refining capacities in Iran strongly suggests sanctions against gasoline sales to the country—such as have been proposed by bills passed by the US House last Dec. 15 and by the Senate on Jan. 28—would not be effective. In fact, imposition of the sanctions would turn into a blessing for the Islamic Republic.

Important statistics must be considered when weighing the merits of sanctions. Iran is the fourth largest oil-producing country in the world and, after Saudi Arabia, the second largest in the Organization of Petroleum Exporting Countries. In addition, Iran's natural gas reserves have been estimated at 948 tcf or more, second in the world after Russia.

On the world market, Iran exports about 60% of its oil production of 4 million b/d and controls 5% of the global oil supply that has a measure of influence over international oil markets. Iran also has strong influence in the Strait of Hormuz: About 17 million bo/d passes through it.

Iran's oil policies

After 1979, the year of the Islamic Revolution, all policies regarding crude oil production and marketing were greatly changed. Previously, international oil companies were responsible for almost 90% of Iran's crude oil exports under long-term agreements. After the revolution, National Iranian Oil Co. (NIOC) quickly found itself in charge of both petroleum sales and exports and came to prefer short-term contracts and a wider, more diverse customer base.

The Islamic Republic immediately announced it would reduce production from a pre-1979 level of over 5.5 million b/d to 3.5-4 million b/d in order to save resources for the future. Also, because of the sharp reduction of supply in the market, each barrel of oil generated more revenue than ever before. In fact, by September 1980, Iranian oil production dropped (largely due to the Iran-Iraq war) to less than 700,000 b/d.

At the same time, the US imposed the first of numerous economic sanctions in response to the hostage crisis of 1979-81. Although the US stopped buying oil from Iran, the exporter quickly found new costumers. During the 1990s, US concerns about Iran's nuclear program led to an additional round of sanctions. The Iran and Libya Sanctions Act (ILSA) of 1996 supplemented these measures with restrictions on foreign companies, targeting new foreign oil field investments in Iran. Still, other industrialized countries continued to trade extensively and invest in Iran's petroleum industry.

The absence of an American business presence in Iran has, ironically, created a noncompetitive market for other countries. Total was the first European company to ignore US sanctions. The company argued that European companies were not subject to US legislation and signed a deal to develop offshore Siri oil field. Other companies followed suit: Eni of Italy and major Chinese, Indian, Russian, and Malaysian companies undertook large investments in Iran's petroleum industry.

In general, while sanctions aimed to put Iran under pressure to renounce the use of terrorism or the acquisition of nuclear weapons, they also had an unintended business effect: American companies could not compete in the Iranian market and were losing ground to non-US competitors.

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http://www.ogj.com/index/article-display/9671998706/articles/oil-gas-journal/volume-108/issue-6/general-interest/comment_-sanctions.html

She sounds like she knows what she's talking about.