As Iran last week began enriching uranium to 60 percent at a second site, its chief nuclear negotiator Ali Bagheri-Kani was in India talking economics.
High on the agenda for the Iranian deputy foreign minister was energy, which increasingly figures in diplomatic or ‘political’ talk as the December 5 deadline looms for an international price cap on Russian oil. Proposed by the United States through the G7, this will bar European and British services, including insurance and tankers, to any worldwide purchaser of Moscow’s crude paying above the cap.
Indian politicians are aware their country has increased oil imports from Russia this year to around 750,000 barrels a day (bpd). There is little prospect of New Delhi resuming imports of Iranian oil, which it stopped in 2019 in fear of US ‘maximum pressure’ sanctions after Washington in 2018 left the Iran nuclear deal, the JCPOA (Joint Comprehensive Plan of Action). In 2017-18, India had taken 10 percent of its oil imports from Iran.
India, which abstained on the November 17 International Atomic Energy Agency (IAEA) vote censuring Iran over its nuclear program, is among countries in the ‘global south’ uneasy over US and EU measures against Russia disrupting energy and food supplies. As Europe cuts back links with Moscow, Pakistan, another abstainer at the IAEA, is in talks with Moscow over buying oil with delayed payments.
True, Indian officials know the price cap is unlikely to choke their supply. Discussions have centered on setting it at $65-70 a barrel. The cap is likely to be above the price Russia now sells at, with benchmark Urals at $52 a barrel Thursday, Argus Media reported. The cap would therefore stem the flow only if oil prices rally.
Even so, the Russian economy is reeling from the consequences of the Ukraine war. By December 5 the EU itself will stop taking seaborne Russian oil. Russia’s exports to Europe – seaborne and pipeline – have already fallen from 3.5 million to 1.5 million bpd, and its GDP, says the International Monetary Fund, will slump 3.5 percent this year. Official figures had $14.7 billion withdrawn from Russia’s banking system in October as anxiety mounted.
Moscow’s efforts to compensate for lost oil exports in Europe by increasing sales to Beijing have been hampered by the sluggish state of a Chinese economy under Covid restrictions. Chinese buyers have also gained a discount put by Rapidan Energy Group at around $15 a barrel.
This has hit Iran’s own sales to China. While Iranian exports have become increasingly opaque in order to hide them from US eyes, Tehran’s oil sales of 500,000-1 million barrels a day (bpd), going almost entirely to China, have been undercut by Russia.
Given the growing lack of transparency, Iran’s ministers have made vague but generally optimistic claims, often banding together crude, gas condensate, petrochemicals and petrochemical products.
Middlemen, barter, uncertain prospects
Iran’s earnings figures are further blurred by payments to middle-men and barter, as was recently highlighted by Fararu. The privately-owned website judged it “unlikely that the Iranian government has succeeded in increasing its export volume,” and chided oil minister Jawad Owji for apparently suggesting exports were somehow higher than the 2.8 million bpd before US ‘maximum pressure.’
Fararu noted that “several experts” had argued the Iranian budget for the year beginning March 2023 should assume an oil price of $40-$50 per barrel on sales of 600,000 bpd. This compares to the $70 figure underlying the 2022-3 budget, and marks a further sign of Iranian media and analysts assuming that talks to revive the JCPOA are going nowhere and that US sanctions will therefore remain at least for the medium term.
Iranian President Ebrahim Raisi has trumpeted success in surviving maximum pressure in the face of depleted foreign revenue. The economy’s halting recovery from two years of recession to low economic growth 2020-22 has been based on domestic industry benefiting from the lower rial and reduced foreign competition in the home market.
But anxieties in Iran reflect not only diminishing JCPOA prospects and the internal instability sharpened with current protests. Iran still needs foreign earnings to pay for imports and rally the rial. The shift in geopolitics and energy supplies with the Ukraine crisis, as well as a rising dollar, aligns Iran not so much with energy exporters, as with so much of Africa and poorer Middle Eastern countries facing rising inflation and uncertainty.