Iran’s Oil Market Amid Geopolitical Tensions and Sanctions
By Jide Tijani
Tehran Strikes and Oil Market Stability
Oil markets showed resilience in the wake of Israel’s retaliatory strikes against Iran, with prices experiencing a brief spike before stabilizing. Brent crude settled at $87.20 per barrel after initially surging to $90.75. This stability reflects investor confidence that the conflict will not escalate further. Analysts suggest that diplomatic efforts, especially by the US, are likely to prevent a significant disruption in oil supply.
“The market seems convinced that the situation will not escalate dramatically,” said Bjarne Schieldrop, chief commodities analyst at SEB. This sentiment is bolstered by Opec+ producers’ readiness to increase output if necessary, mitigating the risk of price spikes.
The Persistent Issue of Illicit Oil Shipments
A recent collision involving the Chinese tanker, Ceres I, highlighted ongoing concerns about Iran’s oil smuggling operations. The tanker, linked to years of illicit Iranian oil shipments, collided with a Singaporean ship, sparking a fire. Despite being in ballast at the time, the Ceres I has previously transported millions of barrels of Iranian oil, circumventing US sanctions through clandestine ship-to-ship transfers.
Experts note that such vessels frequently deactivate their tracking systems to evade detection. Claire Jungman of United Against Nuclear Iran (UANI) emphasized the tanker’s history of smuggling activities. “The Ceres I has been a dark fleet vessel for years,” she stated.
Challenges in Joint Oil and Gas Fields
Iran’s struggles in its joint oil and gas fields with neighboring countries are exacerbated by insufficient investment and international sanctions. Despite holding vast reserves, Iran lags significantly behind its neighbors in production.
In fields shared with Saudi Arabia, Iran’s output is dwarfed by its neighbor’s. For instance, from the Forouzan field, Iran extracts about 35,000 barrels per day, while Saudi Arabia produces 14 times more. Similar disparities are evident in gas fields like Farzad, where Iran’s lack of investment and technological capabilities hampers its production.
The situation is no better with Iraq, where joint field production highlights Iran’s lag. Iraq’s production from these fields has surged by 1.4 million barrels per day since 2013, aided by international collaborations. In contrast, Iran’s efforts remain stymied by limited foreign investment and outdated technology.
Economic and Geopolitical Implications
Iran’s reliance on clandestine operations for oil exports underscores the economic pressures it faces due to international sanctions. These activities, while sustaining export levels, result in significant revenue losses. Iran’s oil export revenue fell by over 20% in 2023, amounting to an estimated $6 billion loss.
The broader geopolitical landscape further complicates Iran’s position. Without substantial shifts in foreign policy and economic strategy, Iran’s ability to fully exploit its oil and gas potential remains constrained. This necessitates a reconsideration of its regional policies and a possible rapprochement with Western powers to unlock foreign investment and technological aid.
In conclusion, Iran’s oil market is at a crossroads, balancing between geopolitical tensions and the need for economic reform. The resilience of oil prices amid recent conflicts and the ongoing challenge of illicit shipments reflect the complexities Tehran faces. The path forward requires strategic shifts to harness its vast energy potential effectively.
Iran's 'Dark Fleet' and Global Trade Routes
Despite stringent sanctions, Iran has managed to maintain significant oil exports through the use of a 'dark fleet'—vessels that operate covertly by switching off their tracking systems and engaging in ship-to-ship transfers in international waters. These clandestine operations primarily target markets in China, facilitated through routes in Malaysia and Singapore. The recent interception of the Ceres I supertanker, linked to illicit Iranian oil shipments, underscores the ongoing challenge of monitoring and controlling these shadowy networks. According to trade intelligence firm Kpler, Iran's oil exports via these covert means have risen by 30% in the first half of 2024. However, this has not been without risks, as these vessels are often involved in incidents such as collisions and oil spills, further complicating international maritime security and environmental safety efforts.
