May 15, 2019 | Policy Brief

Iran Plans to Continue Its Oil Exports. Washington Has the Means to Shut Them Down.

May 15, 2019 | Policy Brief

Iran Plans to Continue Its Oil Exports. Washington Has the Means to Shut Them Down.

The Trump administration announced last month that it would not issue another set of exemptions or waivers for customers of Iran’s oil. This came into effect on May 2. The regime in Tehran, in dire need of hard currency, announced its intention to sell oil on the “grey market.” This opens up new sanctions opportunities for the administration.

Tehran has vowed to sell its oil by any means possible. Iran’s budget for the 2019-2020 fiscal year requires the National Iranian Oil Company (NIOC) to sell 1.5 million bpd at $54 a barrel. It allocates at least $14 billion to the import of essential goods. At the current rate, the regime is likely to experience significant shortfalls. The country is currently facing 30 percent inflation and GDP growth is expected to shrink 6 percent in 2019.

One way the Iranians will try to sell their oil is by offering goods and services for oil. Masoud Karbasian, the CEO of NIOC, has invited foreign companies that trade with Iran to do exactly that. Prior to the cessation of the waivers for Iran’s oil customers, such trade was allowed. Now such transactions could trigger painful U.S. sanctions.

Karbasian has also invited foreign companies to invest in Iran’s dilapidated oil industry and get remunerated in oil. Currently, Sinopec is drawing 105,000 bpd from the Yadavaran oil field in Khuzestan province for the $2 billion investment it made in 2007. However, this is not something foreign companies can hide; the Trump administration can easily track and sanction them for their activities.

Tehran has also tried to use its Energy Exchange (IRENEX) to sell oil at competitive prices in the current sanctions environment. The exchange keeps the identity of the buyer secret to make sure the United States cannot target them with sanctions. Iran’s oil minister, Bijan Zanganeh, has made clear that this lack of transparency is essential to Tehran’s efforts. So far, the exchange has been mostly unsuccessful, but it has found some customers, even if the final price was 10 to 20 percent below market price.

The United States should designate IRENEX and its shareholders. The U.S. Department of the Treasury should also clearly state that any individual or entity transacting with IRENEX risks designation.

Washington should continue to engage in intense diplomacy and impose robust sanctions on Iran in order to warn international businesses of the high cost of purchasing Iranian oil under any circumstance.

Finally, the administration should consider designating other sectors of Iran’s economy, such as construction and engineering, which directly aid Iran’s energy sector. This could serve as a major deterrent to foreign companies that may erroneously believe it is less risky to maintain indirect investments in the Iranian oil sector as the Trump administration increases pressure.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where Matthew Zweig is a senior fellow. Both contribute to FDD’s Center on Economic and Financial Power (CEFP). Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington-based nonpartisan research institute focusing on national security and foreign policy.


Iran Iran Sanctions Sanctions and Illicit Finance