October 12, 2020 [Petroleum Economist] – Iran has shown the first tangible signs that it is successfully countering efforts to prevent it from exporting oil, following a frank admission by the country’s oil minister that it is indeed concealing the origin of its crude shipments. International crude sales play a vital role in Iran’s economy, which has gone into freefall as the US’ sanctions noose tightens.

Despite Tehran’s best efforts to diversify its economy, including major investments in the downstream sector, GDP contracted by 7.6pc between April and December 2019 largely because of a 37pc decline in the oil sector, according to the World Bank. While just 30pc of the country’s budget for the 2019/20 fiscal year was expected to come from oil exports, Iran still faces a $200bn shortfall to complete hydrocarbon-related projects.

While oil revenues’ overall contribution to the economy has fallen significantly from the 60pc they accounted for in 2009, the World Bank nonetheless expects the country’s economic growth to remain weak between 2020/21 and 2022/23. For all Iran’s rhetoric about further reducing dependence on oil, all signs point to crude sales being required to just keep it afloat.

Increased flows

Oil production fell by around 1.2mn bl/d from 2018 to 2019 as Iran struggled to find buyers for its crude. However, output now appears to have stabilised at around 1.95mn bl/d, and Tehran is seeking to ramp up both production and export capacity in defiance of the sanctions. With 117 active rigs in August, the country had the highest rig count among Opec members and the second-highest globally, behind only the US with 250.

A recent survey of production data shows that Iran added 120,000bl/d of output during September. Meanwhile, according to data from oil tracing service TankerTrackers, Iranian exports doubled in September compared with August, reaching 1.5mn bl/d. Of this, condensates are thought to have contributed as much as 155,000bl/d. The data also illustrates Iran’s efforts to obfuscate its exports, with nearly 50pc of the exports moved to foreign tankers through ship-to-ship transfers.

Terminal reliance

The Islamic Republic depends on its Kharg Island terminal to export around 90pc of the crude it sells. But it has been investing in new terminals—partly as a way to give itself more physical options, but also as a means to provide greater scope for muddying any picture of its clandestine activities.

While Iran has on various occasions threatened to close the Strait of Hormuz, through which around 40pc of the world’s oil supply flows every day, such a move would be self-defeating given that its own terminals lie within the Strait. However, Iran anticipates making the first shipment of crude from its new terminal at Jask by the end of the current Iranian calendar year in March 2021. Jask, in Hormozgan Province on the Gulf of Oman, is outside the chokepoint.

The port will have an initial 20 storage tanks, each capable of storing 500,000bl of oil, and related shipping facilities, and will cost around $200mn. The longer-term plan for Jask includes storage capacity for 30mn bl of oil and facilities capable of exporting 1mn bl/d.

With the country’s largest oilfields located near the border with Iraq and more than 1,000km from the Strait, Tehran has fast-tracked the development of a crude oil pipeline that will link the fields of West Karoun and the Zagros Fold Belt with Jask. The first phase of the Goreh-Jask pipeline will provide 700,000bl/d of capacity to the new export facility, with a later phase catering to the terminal’s full 1mn bl/d.

“What is strategic about this project is that many countries in the region have managed to find a second way so that they can export their oil using other routes whenever the Strait of Hormuz faces danger. Alternative methods could be exporting oil through the Red Sea, the Sea of Oman or the Mediterranean,” Iranian president Hassan Rouhani told a ceremony to inaugurate the project.

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