As sanctions tighten, Iran gets squeezed
Iran is increasingly stockpiling its oil production as purchases decline because of sanctions.
May 23rd, 2012
02:00 AM ET

As sanctions tighten, Iran gets squeezed

By Jamie Crawford

Despite recent assurances by senior officials in Iran that the country will weather sanctions targeting the country's petroleum and financial sectors, the international effort is having a noticeable impact on the Iranian economy. And the situation may well figure into talks scheduled for Wednesday in Baghdad over the Islamic Republic's disputed nuclear program, U.S. officials say.

Iranian exports of crude oil fell sharply in April, and could be down by as much as 1 million barrels a day, as many countries seek to reduce their imports of Iranian oil ahead of sanctions set to come into full effect later this summer, the International Energy Agency (IEA) said in a report released earlier this month.

President Barack Obama has until June 28 to decide whether countries that purchase Iranian oil have significantly reduced their purchases, or face a cutoff in access to the U.S. financial system under legislation signed in December.

Separately, the European Union is set to enter into a complete embargo of Iranian oil on July 1. As countries diversify their purchases ahead of both sets of sanctions, U.S. officials say Iran's declining customer base for oil, as well as prohibitions on Iran's central bank, are having a broad impact on the overall Iranian economy.

"The value of their currency has dropped like a rock and that has a significant impact on Iran's ability to pay for the material it needs for its nuclear program," David Cohen, Treasury under-secretary for terrorism and financial intelligence, told an audience in Washington earlier this month.

"They are increasingly isolated - diplomatically, financially and economically," he said. "I don't think there is any question that the impact of this pressure played a role in Iran's decision to come to the table," for talks with the United States and its allies about the nuclear program.

As the sanctions deadlines draw nearer, Iran is losing oil revenue because of both declining sales volume, and declining prices as countries that still purchase the crude see it as a distressed asset, and seek to negotiate steep price discounts on every barrel purchased.

To be sure, Iran is still producing a great deal of oil. In its report, the IEA said Iran was pumping about 3.3 million barrels day. But as most of Iran's customers reduce their purchases, the agency said much of Iran's excess production is being diverted to storage both onshore, and aboard floating tankers at sea. Estimates of Iranian oil added to floating storage since March range from 450,000 to 800,000 barrels a day, while an additional 20 million to 25 million barrels have been added to onshore facilities, the IEA said.

Once on floating storage, Iranian tankers have been turning off ship transponders so their movements are more difficult to track. Analysts who follow the Iranian program say the elusive tactic serves two purposes: It allows Iran to ply the seas and engage in covert sales of the crude, often at greatly discounted prices. Also, Iran is loathe to signal to the world a high volume of floating storage, as that would be an acknowledgment that the sanctions are having an impact.

The tracking systems are required by international law on seagoing tankers as a means to protect against accidents and spills.

Even more financially detrimental to Iranian oil exports is the prospect of shutting down any of the country's oil fields should onshore domestic storage build up as more buyers go elsewhere to avoid being targeted by sanctions.

"It's not just at your tap, or at the faucet where you just turn it off and turn it on," Jamie Webster, a Middle East oil analyst at PFC Energy, said. "When you turn it back on, 10 to 40% of that oil will not be there again, and you're going to have to essentially build new pipes, do some more drilling."

Japan and 10 countries from the European Union have already secured waivers from U.S. sanctions as they have significantly reduced their purchase of Iranian oil.

Supporters of the U.S. legislation on Capitol Hill are pointing to Japan as a prime example of how far they are looking for countries to go in their reductions of Iranian oil.

Already in a precarious position with its energy security following last years earthquake and tsunami that also triggered a nuclear crisis, Japan's early commitment to reduce it's purchases of Iranian crude by 15% to 20% should serve as an example to other countries, congressional aides say.

Sens. Robert Menendez, D-New Jersey; and Mark Kirk, R-Illinois, who both authored the legislation targeting oil purchases through Iran's central bank, jointly endorsed a proposal recommending an approximately 18% reduction of Iranian oil purchases by all countries across the board in a letter to Treasury Secretary Timothy Geithner earlier this year.

"Congress is not going to be very happy about it," if other large importers of Iranian oil don't reduce to near the levels of Japan, a congressional aide told CNN while declining to be identified due to the sensitivity of the situation. The administration has "done a really good job of implementing the sanctions, better than any Republican I think expected, but if they don't fully implement, they are going to take a lot of heat up here," the aide said.

India, one of the biggest importers of Iranian crude, said last week that it would cut imports by 11% in the coming year as it has faced enormous pressure from Washington to reduce its purchases. While the announcement was welcomed by the administration, it was not clear whether an even greater reduction would be necessary to get a waiver.

"As (Secretary of State Hillary Clinton) said when she (was in India recently), we are making progress," State Department spokeswoman Victoria Nuland told reporters after India's announcement. "There's more progress to be made."

The administration is also looking to South Korea and China to make significant reductions in their purchases of Iranian oil. Earlier this year, China reduced its purchases by as much as 50%, but that decision was driven mostly by a pricing dispute over existing contracts China had with Iran.

And as the deadline on sanctions enforcement nears, analysts who follow the situation say China is taking advantage of the situation by buying Iranian oil covertly, but gaining significant discounts - as much as $20 a barrel - as a condition to keep purchasing.

Diplomacy and international relations are likely to play a role in the administration's determinations with China especially so long as there is some form of reductions to go along with the significant price squeezing by the Chinese.

"I think the administration is really trying to thread this needle delicately," said Mark Dubowitz, executive director of the Foundation for Defense of Democracies, who has followed the sanctions program closely. "Between on one hand really forcing Iranian oil off the market and forcing significant discounts on the oil that's being sold, but on the other hand not doing it too aggressively, because in doing so, it would face the possibility of returning to high oil prices we saw a month or two ago."

Both China and India have said they do not support either the EU or U.S. sanctions, and have not asked for a waiver.

For its part, Turkey, which along with South Africa, had recently ramped up its imports of Iranian oil in advance of the looming sanctions, is aware of the coming deadline.

TUPRAS, a private enterprise and Turkey's sole importer of Iranian crude, recently announced it would cut Iranian imports by 20% from the previous year's quantities. Presently, the crude imports from Iran account for 30% of Turkey's total imports, or just over 200,000 barrels a day, a Turkish official told CNN.

The company intends to replace that lost volume with Iran with additional purchases from Libya, the official said.

And because U.S. sanctions target any transactions of Iranian oil processed through Iran's central bank, Iran is facing a hard currency squeeze as more international banks refuse to repatriate any profits of oil sales back to Iran in their national currency, the rial. Iran is essentially being forced to barter and take profits in the form of the currency of the country purchasing the oil.

"Iran can't do anything with (Indian) rupees or (Chinese) yuan except buy Chinese and Indian goods and services that it really doesn't need," Dubowitz said. Without the ability to convert their sales into Iranian currency, and repatriate their profits, "all the oil they sell is going to be useless to them," he said.

Complicating matters even greater for those countries that are permitted to continue their purchases of Iranian oil at reduced rates is the increased difficulty in acquiring maritime insurance because of the sanctions.

With nearly 95% of all maritime insurance being underwritten in Europe, many of those insurers are denying coverage for anything that involves Iranian transactions.

In the absence of insurance, governments themselves would have to step in and guarantee liability on the event of a spill or some other catastrophe. Many Iran watchers expect the insurance sanctions to become particularly troublesome to Iran.

Whether the increasing pressure on Iran has brought about a willingness on its part to consider significant concessions on its nuclear program remains to be seen.

The so-called P5+1 group of the United States, Russia, China, France, Great Britain and Germany will discuss the issue with Iran in the Iraqi capital Wednesday. Most who follow the situation closely are skeptical about any significant announcements by Iran about its nuclear program in the near-term.

But regardless of whatever progress is made, some analysts say the United States should not be hasty in its response.

"I think the temptation which needs to be resisted is not to offer too much sanctions relief too fast," Dubowitz said. "Because this whole system which is being held together by the fear of U.S. penalties is going to quickly unravel, and I think the administration will lose all of the leverage that it so diligently assemble over the past few years."

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soundoff (72 Responses)
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    May 23, 2013 at 3:17 pm | Reply
  2. robert

    I think we should bomb Orange

    June 23, 2012 at 1:19 am | Reply
  3. Folkingtales

    WOW!!! You poor folks, you argue and argue and argue and in the end you simply FORGET WHAT YOU WERE ARGUIND ABOUT. If there is a propaganda department here in the US, this is their goal. To get the citizens angry confused and devided, then they can force any law they like upon the weak populace and continue warmongering and "policing" or shall I say "looting" the poor third wold countries for huge profits. While being praised by the citizens for "defending the freedom" ....WHAT A JOKE!!!!!!!

    May 24, 2012 at 1:11 am | Reply
  4. arsenio amores

    america and israel terrorists? no way man. america and israel have the moral obligation to defend the world against any nation who try to inflict damages on any country that is peace and god loving.

    May 23, 2012 at 11:58 pm | Reply
  5. Kat

    The Iranian people will never forget that it was the Zionazis who threatened the world with wars to impoverish the Iranian nation....and as they say Karma is a biatch.

    May 23, 2012 at 10:59 pm | Reply
    • KCW

      What? Israel would be happy to have good relations with a Sane Iranian Government. Jews had for a long time a good life In Iran. Israel would be happy to have no War and just prosper economically. If only the Iranian Government felt the same way. Israel has been invaded many times. Iran? (Just the last 100 years please). The Iranian Government uses the Palestinian issues to try and compete for Influence with the Sunnis. Notice I don't say Iranian people, because their Government doesn't represent the Majority of its people, which find them selves at the wrong end a Stick if they express the "wrong views". Iran's only problem is it's governments attitude, towards the Israel, The World and it's Young People.

      June 1, 2012 at 12:33 am | Reply
  6. MyPictureOfMuhammad

    8=>(_|_)

    May 23, 2012 at 9:59 pm | Reply
  7. aurelius

    When will such sanctions be applied to Israel for not withdrawing from the territories it has confiscated during the past 30 years?

    May 23, 2012 at 8:33 pm | Reply
    • Ameritalib

      Right on brother.

      May 23, 2012 at 9:27 pm | Reply
    • KCW

      Confiscated? You mean won on the Battlefield After being attacked. 200 years ago a loser in a war was wiped out, especially if they started it. Lucky for Israel's enemies they missed the Good Old Days of Middle East Battle. (I kid about them being good). The Hittities, Assyrians, Babylonians, Persians, Egyptians etc would have depopulated an attacker.
      That was pre-CNN. Consider it Middle East Light.

      June 1, 2012 at 12:37 am | Reply
  8. Ameritalib

    You only could become a good Jew only if you die

    May 23, 2012 at 6:43 pm | Reply
    • Medic1

      ameritalib? Sounds like you are a Taliban person living in America. Why not move back to camel heaven? You don't sound like you enjoy it here. We have freedom of choice here. You can choose to leave. In fact, if you publish you name and address, you would probably receive enough contributions to get a ticket back home.

      May 23, 2012 at 6:57 pm | Reply
      • Ameritalib

        I live here to take back some of what u all steal from us and to screw as many easy young hores as possible. God bless America

        May 23, 2012 at 9:24 pm |
      • Ameritalib

        my address: on top of ur mom. i drink her milk. i park my camel between her legs. i exercise on her back. like alot before me did

        May 23, 2012 at 9:53 pm |
    • Sir Arthur Conan Doyle, B.A., J.D., S.P.J.

      I applaud the anti-semitism! Given that religious prejudice, or any other kind of prejudice is the hallmark of intellectual vacancy, you prove the point! While you may not prove the mastter asserted that "Jews are Greedy" (some are! and some are not, just like some Baptists are, and some are not and even more suprising is that some Hindus are left handed, and some Muslims are Left Handed) Now the Catholic Church once taught (I think that they threw this one out with fishsticks on Fridays, that being Left Handed is the mark of the Devil!) Now we all know that Ronald Reagan was Left Handed. Therefore using the clear reasoning of our AntiSemetic friend, therefore Ronald reagan's mother must have been a Hindu and his father must have been a Muslim!) And the fact that Nancy Reagan often wears Prada, this should be proof enough for the Neocons in the Republican Party that Ronald reagan must also have been Lucifer's brother! I went to a rather famous University, then graduated from a famous Law school. I read the entire article, which appears to be about Iranian Oil. Nowhere in the article is the word "Jew" mentioned, not even once. It is very clear that the Iranian government is concerned about their floqating oil storage units (Tankers that transport oil in violation of the embargo) might be sunk, and Jews have historically been responsible for sinking ships! The Jews sunk the Titanic! What you say...no evidence of that at all. Now with the help of our lerned Anti-Semetic Friend, we can prove that the Jews sunk the Titanic! the Titanic was sunk by an "ICE-berg", Greenberg, Weinberg, Goldberg, Steinberg. Clearly that big block of ice that was floating around must have been Jewish! Sir Arthur Conan Doyle, B.A., J.D., S.P.J.

      May 23, 2012 at 7:42 pm | Reply
  9. Medic1

    As usual the anti Semites are here again. Israel will continue to exist and prosper because, like all other countries it has the right to do so.

    May 23, 2012 at 4:19 pm | Reply
    • Ameritalib

      Israel has the right to move back to europe, the place where those thugs came from. Hiters left overs. The world is better off without the greedy zionists

      May 23, 2012 at 5:20 pm | Reply
      • Gonna Put My Balls On The Top Of Your Head

        Not all Jews and Israelis are Zionists, you stupid brain-dead fuck.

        May 23, 2012 at 5:25 pm |
      • Stig Helmer

        Their actual origin is Central Asia – as they are almost entirely Judaized Khazars.

        May 23, 2012 at 5:25 pm |
    • Stig Helmer

      No one has an issue with the existence. Stop playing the victim. No one would have an issue if they didn't violate more UN Security Council resolutions than any other country at history, weren't constantly attacking other countries, occupying more and more land outside agreed borders, having zero-transparency in their nuclear arsenal, and just happen to be threatening a 70 million+ nation with an unprovoked attack – which happens to also be the oldest nation-state-empire in the world, with a history of zero invasions of other sovereign states in the 20th century (I'm referring to Iran.) They should stay in their own backyard and stop dragging the US in all their paranoia and belligerence.

      May 23, 2012 at 5:24 pm | Reply
  10. Zucker.

    Goes 2u adam!!choosen nations from 1living God/Allah.they ar there 2put on line goons and terrors.pity on poor and innocent civilians who don't understand the meaning of sunctions and die of hunger.shame to leaders,they'l al burn in the evarlasting fire.

    May 23, 2012 at 3:52 pm | Reply
  11. Zucker.

    America n its twin sister Israel wil keep on ruling the world and that wil remain a fact.

    May 23, 2012 at 3:15 pm | Reply
    • Ameritalib

      America and Israel are only partners in global crimes. Criminals always get stopped. One day they shall pay the price in HELL

      May 23, 2012 at 5:23 pm | Reply
  12. Jones

    and they keep touting how jews are highly succesful and wealthy ,,,,, yea' by sucking other people's money like Zuckerberg... ask him. Corzine. Maddoff. Leventsein ....all birds of same feathers.

    May 23, 2012 at 1:40 pm | Reply
    • Thor

      I'm with you on that matter.

      It's funny how bankers regulate Tel Aviv banks.....

      May 23, 2012 at 3:05 pm | Reply
    • Medic1

      Yeah. All Zuckerberg did was to invent something new and turn it into a worldwide method of bringing people together. What have you done to make the world a better place?

      May 23, 2012 at 4:34 pm | Reply
      • Ameritalib

        Quit JEWING me. its funny. Jews nothing but CANCER

        May 23, 2012 at 5:25 pm |
    • Medic1

      cancer? Jews will probably come up with a cure for it just like they have for many diseases. If you get cancer will you not take the cure because a Jew found it? What contributions to medical science have your Taliban come up with? Poisoning girls in afghan schools does not count.

      May 23, 2012 at 6:00 pm | Reply
      • Ameritalib

        Go on killing ur babies before birth. hundred of thousands of innocents American babies are killed by their own parent every yeaer. murderers. You have no mercy on your own, we dont expect u to have it on others, Two nations built by murdering the natives. America and the Zionest nation of jew dogs

        May 23, 2012 at 6:33 pm |
      • Medic1

        Arab girls in Israel have the right to an education. Why are the taliban afraid to let girls get an education in Afganistan?

        May 23, 2012 at 6:33 pm |
    • arsenio amores

      why are you bitter about jews acquiring much wealth? they are the chosen people of god!

      May 23, 2012 at 11:42 pm | Reply
  13. Jones

    See the Facebook fiasco? Overrated stock of facebook? Who 'overvalued' it? Who tipped the insiders? Goldman Sachs, Corzine, Madoff, Zuckerberg – ring a bell? You pat my back, I pat yours -in scheming others.

    May 23, 2012 at 1:30 pm | Reply
  14. MobiusEight

    Wait for it...

    May 23, 2012 at 1:23 pm | Reply
  15. Ameritalib

    4 bilion of ur taxes goes every yr to support the evil terrorist nation of Israel. the jew nation that dont belong in the middle of the middle east. the creation of this nation and us were based on killing the innocent people whom rightfuly lived in it for thousands of years. ur tax $ better spend on ur hungry homeless needy people. God will never forgive u

    May 23, 2012 at 1:13 pm | Reply
    • adam

      Well considering they are the chosen people of one of the gods I think he will be ok.... or were you referring to one of the other gods?

      May 23, 2012 at 3:24 pm | Reply
    • Medic1

      Jewish history in the middle east goes back 5 thousand years. Try reading history to get your facts straight.

      May 23, 2012 at 5:50 pm | Reply
      • Ameritalib

        Threr was never in history a nation by the name Israel,idiot. the people of israel liverd everywhere like dumb ass gypsies lookong for a place to rob and abuse. They leave ruins where ever they go. They destroyed the German economy thats bthe jew Hitler try to get rid of them. Sory we have to deal with whatever was left. sory for humanity they were not exterminated. bug spray

        May 23, 2012 at 6:39 pm |
  16. hell2israelis

    all this heartache and headache because of US pet Israhell.

    May 23, 2012 at 12:55 pm | Reply
    • Ameritalib

      You mean Israel got America by the balls. A.I.P.A.C. The zionist lobiest group that runs all of US foriegn policies American young soldiers die every day for the Jew thugs of Israel. Shame on the voters whom are to stupid to see .

      May 23, 2012 at 5:29 pm | Reply
  17. Stig Helmer

    There are countless examples of photographs and video used of Iran when simply mentioning the country that are blatant examples of irresponsible journalism. Images and video of poor or low class areas and people are intentionally used when discussing irrelevant topics such as the nuclear program or the economy. In this article an irrelevant, barren looking landscape is used – one which has been used repeatedly on CNN. Never does CNN show the developed metropolitan areas or the lush green countryside particularly common in North Iran. This is equivalent to discussing United States economy and showing pictures of a barren part of New Mexico and video of Americans at a convenience store buying nachos. You should realize that although many of your viewers and investors may not think about these things, some of them do and they might be larger than you would guess. This is not about one country or another, it’s about irresponsible journalism and a dangerous correlation you are forming with agencies like Fox news. I suggest you modify your depiction practices.

    May 23, 2012 at 12:02 pm | Reply
  18. Paul

    Good morning world.

    Please dont forget what the US has done to Iraq, Afghanistan, Libya, Egypt, Pakistan and now Syria.

    May 23, 2012 at 10:14 am | Reply
    • nerokae

      From which point of view? things is relative, to me the muslimic world has done so many awful things. While the western only the goods.

      I was from a muslim country, glad that I left that country 10 years ago.

      You are so clueless about world, go abroad and see with your own eyes and feel with your own skins.

      May 23, 2012 at 10:40 am | Reply
      • T-Bone Thakur

        They probably kicked you out. therefore you left...and please don't come back. Now, back to facts. Just one. Where do you think tons of americans, british, europeans, chinese, russians, indians, sri lankans, pakistanis, turmenistanis, are goign for jobs??? Muslim middle eastern countries!!!

        May 23, 2012 at 10:52 am |
      • Abdul

        To nerokae;

        You left that country ONLY 10 years ago? You should have left it 10 years after your were born. Why, US declined you visa that it took u awhile to leave that country????

        May 23, 2012 at 1:08 pm |
  19. Hahahahahahaha

    "But, but, the sanctions aren't hurting us", says the towel head. Hahahahahahahaha

    May 23, 2012 at 9:49 am | Reply
  20. Bharat

    Petrol price hike in india will destabilise the government and a new anti American government will take over... Israel and America are going to lose big time if they bully international economics!!!

    May 23, 2012 at 9:46 am | Reply
    • T-Bone Thakur

      Folks, Experimental democracy is DOA (Dead On Arrival) in India. It is has never worked in large populated countries. Particularly those with mostly illiterate populace such as India. Too big to manage, minorities such as muslims, sikhs, christians get disenfranchised etc. India will need to go back to its socialist/communist roots. Maybe splitting it up into smaller pieces (circa USSR) is an alternate scenario. CIA is probably running some models to deal with the potential implosion

      May 23, 2012 at 10:49 am | Reply
  21. krm1007

    With friends like India who needs enemies.India has been double crossing Americans in Iran for decades. Sharing American technology, dealing in oil and now wheat just to name a few. US should suspend all aid and transfer of technology to India including nuclear.

    May 23, 2012 at 7:49 am | Reply
    • SayanIndia

      @krm1007, fortunately United States administration is not as dumb as you.

      India’s relation with Iran remain firmly rooted on geopolitical reality of the region and indeed among the common masses of Iran the quest for democracy remain significant that will lead to ultimate success today or tomorrow.

      Sayan.

      May 23, 2012 at 8:05 am | Reply
      • krm1007

        Glad that you admitted that India's relationship with US is deeply rooted in double dealing and backstabbing. Fortunately, Americans and the US Administration are onto this Indian two faced game and presidential candidates will be questioned on sanctions that they plan to impose on India for their dubious actions. Enough is enough and American taxpayers are not going to look the other way any longer.

        May 23, 2012 at 9:12 am |
    • Mirka

      You are ignorant! You think only your US & Israel have need? India, China etc all have larger population than you thugs and have more needs. idiot!

      May 23, 2012 at 12:44 pm | Reply
      • Splitrail

        You're right Mirka. China and India do have needs. Considerable needs for education and basic infrastructure developement among others.

        The problem here is not citizen against citizen, it is government against governement. Oligarchy against oligarchy. The will of the people is not being heard, and individuals are not taking responsbility for their own actions. We sit back and bitch about it, but we do nothing to change it. It is easy to be an armchair politician or philanthropist when you have nothing at stake.

        Rather than argue over jaded economic or political views, it would be refreshing to see any one of the people in the thread above actually get off their ass and do something about it.

        May 24, 2012 at 2:12 am |
      • Tunda Tirranand

        To compare India with China is an insult to China. I know China, I have lived in China, I love Chinese and India is no China.

        May 24, 2012 at 8:03 am |

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