15 December 2020 - 12:18
  • News Code: 310771
Diplomacy of Silence

TEHRAN (Shana) -- The silence diplomacy. That describes the policy Iran’s Minister of Petroleum Bijan Zangeneh adopted after US President Donald Trump quit the 2015 Iran nuclear deal in 2015 and re-imposed oil sanctions on Iran.

Every time he was asked about Iran’s oil production and exports, the minister replied: “I don’t say anything. As long as sanctions continue my silence goes on.”

The two-year silence is still effective about Iran’s oil production and exports data. However, based on statistics, Iran’s oil exports have not been down to zero and Iran’s petroleum products’ exports have increased.

The US re-imposed oil sanctions on Iran in November 2018, thereby slapping an embargo on Iran’s oil exports. Eight major buyers of Iran’s oil were granted waivers which were lifted in May 2019. The US said it was seeking to zero Iran’s oil exports. Two years have passed and the US has failed in its objective of bringing Iran’s oil exports down to zero.

However, Iran has proceeded with its capacity building plans to resume its presence the oil market once the sanctions have been lifted. Gas production in the giant South Pars gas field has increased, while crude oil processing capacity has grown at Iranian refineries. A gasoline importer until eight years ago, Iran is now an exporter of this product. Petrochemicals production has also grown significantly. Iran’s customs data show the bulk of the country’s hard currency revenue comes from oil income.

Over the past two years, the US has resorted to every tool to bring an end to Iran’s oil exports, ranging from threatening buyers of Iran’s oil to monitoring all news about Iran’s oil production and exports. It even imposed sanctions on the Persian Gulf Petrochemical Industries Company (PGPIC) to keep Iran from selling petrochemical products. As soon as news of Iranian petroleum products exports spread, the US did not hesitate to impose sanctions. The US toughened sanctions on Iran’s oil; however, it failed to zero them.

Although the US went on to impose sanctions on Minister Zangeneh, oil industry managers and some offshoots of the Petroleum Ministry, the minister said it “made us more determined”.

The Unimaginable Came True

Under the administration of President Hassan Rouhani, Iran’s petroleum industry has been through ups and downs. Iran’s oil exports had dropped to below 1 mb/d. As soon as Iran struck the 2015 deal with six world powers, the country managed to increase its oil production to record levels in a quite short period of time.

Homayoun Falakshahi, a senior oil analyst at market intelligence firm Kpler, said: “During the days when oil sanctions were lifted on Iran, foreign companies thought Iran would be able to return to the oil market within three years. Nobody imagined Iran could increase its oil production and exports within six months.”

“Certainly, the capacity building during the JCPOA talks were instrumental in this achievement,” he said.

Falakshahi said no foreign company imagined Trump would pull the US out of the JCPOA to reinstate sanctions. French energy giant Total signed the deal for the South Pars development after Trump had taken office.

Shadow of Sanctions

Iran was exporting more than 2.8 mb/d of oil before the US quit the JCPOA with 40% of Iran’s oil destined to Europe. Iran’s oil production capacity had reached 3.9 mb/d.

“What has happened with Iran’s petroleum industry since November 2018 is like a wave; Iran’s oil exports started falling, but gradually we saw unofficial figures that Iran’s oil exports had increased again. Iran never releases any official figure,” he said.

Falakshahi said even oil companies that were willing to cooperate with Iran preferred to remain anonymous for fear of US penalties.

Asked if Zangeneh’s silence had been helpful to Iran’s petroleum industry, he replied: “Yes, to some extent.”

Falakshahi added that the decision by Zangeneh and oil managers to “cover up data on oil production, export designation and petroleum products” has been effective for Iran.

He said Iran managed to keep its oil production and exports data confidential despite technologically sophisticated tools developed in the world to unveil such secrets.

Tanker Tracking Data Challenged

Iran is under sanctions and therefore oil exports are carried out with hardship. However, the main question remains to know whether or not the silence diplomacy has paid off over Iran’s oil.

Falakshahi says: “Sure! Zangeneh’s silence diplomacy challenged the tanker tracking institutes’ effort to have access to Iran’s oil exports data.”

Tanker tracking firms have offered conflicting figures on Iran’s oil exports, ranging from 100,000 b/d to 600,000 b/d.

Even some media in Iran wrote about Iran’s oil products and exports and destinations. That led to tighter sanctions on Iran, but the Petroleum Ministry stuck with its silence diplomacy.

“This policy has made it difficult for the companies tracking Iran’s oil export data. I don’t say their data is incorrect, but it is not complete,” he said.

NIOC Expertise

International oil sanctions that had been imposed on Iran since late 2000s were removed following the implementation of the JCPOA. The National Iranian Oil Company (NIOC) had gained experience in skirting around sanctions by applying complicated mechanisms.

Following the implementation of JCPOA, some companies revealed their secrets on circumventing sanctions and that led to the renewed imposition of US sanction since November 2018. All loopholes had been blocked and NIOC had no option. New methods had to be found and tried for cooperation with foreign companies. The success of such a policy was tied to no media disclosure.

“Iran had complicated oil exports options to the extent that it was difficult to track Iran’s oil exports accurately,”Falakshahi said.

Benefits for Buyers

It is difficult to say whether or not Zangeneh’s silence diplomacy has been successful as there is no accurate data available on Iran’s transactions and customers. But an oil official recently said that this policy would definitely serve buyers of Iran’s oil as they intend to bypass US sanctions. The US is monitoring all oil routes and it will not hesitate to blacklist any company dealing with Iran. Therefore, Iran’s decision to keep secret the name of companies has given assurances to oil buyers.

“For instance we may guess Iran’s major oil buyers, but the point is that nobody knows how much oil has been purchased from Iran. It has made it difficult for the US in its policy of countering companies dealing with Iran,” said Falakshahi.

News wires and Twitter have been a major source of information for the US to impose sanctions on Iran’s oil sector. Even Mike Pompeo, the US secretary of state, once cited a Twitter story about Iran’s oil. Zangeneh’s silence diplomacy has pushed the Americans to resort to unreliable sources.

No Halt in Iran Oil/Gas Supply

One may ask if the COVID-19 pandemic has had any role in the falling demand for oil. Zangeneh has only said that Iran’s oil and gas production did not stop under COVID-19 conditions and that oil development projects were being pursued.

COVID-19 is a global pandemic affecting the world economy, but the conditions are tougher in Iran because of oil sanctions. Iran has failed to sell oil as it had planned, but it has instead enhanced production from the South Pars gas field 2.5 times. Iran’s gas production capacity from South Pars, which it shares with Qatar, has now reached 700 mcm/d. Mohammad Meshkinfam, CEO of Pars Oil and Gas Company (POGC), has said that South Pars accounts for 40% of Iran’s gasoline needs.

When COVID-19 broke out, Iran was already under sanctions and it was preparing to wean itself off oil income. The country has switched to gas and petroleum products and therefore it did not suffer the oil shock some countries experienced during the first wave of the coronavirus.

“I believe that the coronavirus did not affect Iran’s oil exports too much,” said Falakshahi.

Strong Comeback

Following the victory of Joe Biden in the US presidential election, all eyes are fixed on the White House. Will Biden, a vice president in the Barack Obama administration, lift oil sanctions on Iran? Even so, will the already saturated market absorb Iran’s 2mb/d oil? What would happen to the oil the US supplied to remove Iran and Venezuela from the market? Zangeneh has said he would not speak up as long as sanctions were in effect.

The minister; however, acknowledged during a videoconference meeting of the Gas Exporting Countries Forum (GECF) that due to US sanctions Iran could not combat the coronavirus effectively.

Falakshahi said: “The main question is to know how the sanctions would be lifted. Removing the oil sanctions all at once would not be in the interests of the Biden administration and I don’t think that he would do so. Even if he chooses to lift the oil sanctions he would do it over a 6-month period. They don’t intend to give any new shock to the oil market by letting Iran in to see once again a price slump. However, Iran is willing to return to the oil market as soon as possible.”

Is Iran able to repeat its post-JCPOA experience in oil production? Falakshahi said: “The best and most effective asset for every oil company is its human resources. Iran’s petroleum industry, backed by its skillful manpower in the oil and gas installations, has effectively managed its reservoirs. Nobody imagined that Iran would return to the oil market shortly after the JCPOA. But was back to the market with a stable output. I think that Iran would be able to repeat the same experience although reservoirs are mature.”

“I think that Iran can restore 80-90% of its production level and export shortly after the sanctions have been lifted,” he added.

Long-Standing Sanctions

The Rouhani administration is bowing out in less than a year. Iran’s petroleum industry was sanctions-free only for two years post-JCPOA. It was again placed under sanctions in November 2018. Iranian oil administrators never imagined to experience such US pressure.

During the first round of sanctions, Iran could take some measures, but this time everything is out of the question.However, officials prefer not to share these problems with people. Iran has even increased its oil and gas production in recent years, despite unfair rivalry from neighboring states and oil producers.

“I can’t say that Mr. Zangeneh’s term has been perfect to be free from any criticism. But if I want to give a general assessment by taking into consideration all internal and external problems the Iranian petroleum industry has been faced with, I would say he has fared well,” said Falakshahi.

“Mr. Zangeneh focused on completing South Pars projects and increasing gas production from this gas field. Technically speaking he did well because a market was created for South Pars products, the gas distribution network was extended across Iran and the petrochemical production chain was diversified,” he said.

“Furthermore, completion of the Persian Gulf Star refinery under this administration was one of the most significant and the most strategic petroleum industry projects over the past seven years. Without this refinery, Iran would have seen many problems like condensate storage or gasoline production. The Persian Gulf Star refinery was of great help to that effect,” said Falakshahi.

Courtesy of Iran Petroleum 

by 

Negar Sadeqi

News Code 310771

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