Shutting off Iran from the International Downstream Oil Market

This week saw several important developments with respect to Iran’s relations with the international oil and gas market.  Following a long history of US sanctions, including the 1996 Iran-Libya Sanctions Act, the OFAC sanctions, as well as the more recent blacklisting of certain Iranian banks, large multinationals are increasingly being encouraged to leave Iran.  This initially started with international financial instutions and increasing disinterest on the part of the major oil companies in doing business in Iran.  The problem is now deepening.

It was reported this week that Russia’s Lukoil would no longer be selling gas to Iran.   Another report stated India’s Reliance would be abandoning a contract to import Iranian oil.  Reliance had earlier stated that it would no longer sell Iran refined gas.

Reports have abounded that the Iranian government is increasingly stockpiling gasoline in the event of increased sanctions.  Interestingly, this problem is concurrent with the regime’s plan to remove subsidies on key commodities such as gasoline.  Given Iran’s limited refining capacity, increased sanctions and the lack of subsidies could arguably force Iran’s economy to grind to an effective halt.  Another critical issue is that Iran is desperately in need of international investment and technology in its current oil fields and its refining capacity cannot even meet local needs.

As a follow-up, reades may find this article useful as it outlines parties in Iran’s crude oil export business.

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