Iranian oil competes with Russian crude in the parallel market (article) - Energy

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Given the sanctions imposed on it, selling Iranian oil on the parallel market represented one of Tehran’s options to preserve its share, and the revenue in foreign currencies, so that it could – by selling its oil at a discount – use it to improve the Iranian economy, which has been damaged by the sanctions.

China continued to buy Iranian oil, despite US demands to China for cheap Iranian oil during the sanctions period.

This comes despite the fact that in recent months the government of US President Joe Biden gave the green light to encourage Iran in the nuclear talks to reach a new agreement.

Increased purchase of Iranian oil will improve Iran’s economic conditions, and the conditions for signing a new agreement will be available, as the situation in the global energy market has changed after the Russian invasion of Ukraine.

In turn, US and European sanctions on Russia have made it difficult for Russia to sell oil, and Moscow has offered discounted oil sales to countries such as China and India to continue selling oil.

Russian-Iranian rivalry

Bloomberg reported earlier this month that Russia was selling its oil at a $30 discount on oil sales, while Iran announced a $20 discount on oil exports to brokers.

Iranian oil

In recent weeks, some experts have suggested that Russian oil has become a competitor to Iranian oil.

The Russian state-owned company, Rosneft, failed to sell 37 million barrels of oil from the country’s western ports, in the last week of last April, and did not find any customer to buy oil.

The main reason for this failure is that in the tender for the sale of oil, the prerequisite for payment in Russian rubles was set.

It should be noted that Russia produced 11 million barrels of oil and gas condensate per day before the invasion of Ukraine, and exported 4.8 million barrels per day of oil and gas condensate, and about 3 million barrels of oil derivatives.

About half of these shipments went to Europe and the United States, while the eastern markets, especially India, South Korea and Japan, each of which provided only 3 to 6% of its oil needs from Russia, and Russia’s share of China’s oil imports was about 15%.

Moreover, about half of Russia’s exports depend on oil and gas. Last year, Russia exported $110 billion in crude oil, $64 billion in oil products, and $62 billion in gas.

Find buyers

Reuters reports that China is tempted to buy cheap Russian oil, a move that has led to a significant drop in Iranian oil sales to this huge global economy.

The Iranian “Sharq” newspaper also expressed its concern about the seizure of the Iranian steel export market from Russia.

On May 19, Reuters reported that Russia’s deep discounts have led to a sharp decline in Iranian oil exports, and 40 million barrels of Iranian tankers are waiting to find a customer in East Asia.

The report quoted trade sources and tanker-tracking companies as saying that since the Russian invasion of Ukraine on February 24 and Western sanctions against Russia, the country has offered huge discounts to customers to replace Western markets with Asian ones, to the point that China has preferred to buy its oil from Russia instead of Iran.

According to a Reuters report, 20 Iranian supertankers carrying 40 million barrels of oil cargo are currently anchored in Asian waters, including Singapore, and are looking for a customer.

Rivalry heats up

Earlier, Iranian Oil Minister Javad Oji claimed that Russia offered discounts to oil buyers, but this is due to Western sanctions against the country, and finding a client for Russia.

Russian oil

The latest statistics indicate that Iranian oil exports to China before the crisis in Ukraine reached between 700,000 and 900,000 barrels per day, and it is estimated that they fell to between 200,000 and 250,000 barrels per day in April.

Given the continuing Russian invasion of Ukraine and the continuation of sanctions on the Russian energy industry, Iran needs to reach a new agreement with the 4+1 countries to maintain its share of the Chinese energy market.
Any delay in signing a new nuclear deal would mean a deterioration in Iran’s economic situation.

Russia, for its part, will use all available means to increase oil sales with deep discounts to China and its other traditional clients.

Contrary to the claims of Iran’s oil minister, Tehran cannot easily find new export destinations for Iranian oil during the sanctions, unless it wants to compete with Russia in the “unofficial” parallel market at a larger discount.

Therefore, China and the major oil consuming countries in the region are taking advantage of the cheap oil competition between Iran and Russia in the parallel market.

If Iran continues to sell oil in the parallel market to circumvent the sanctions, only the interests of stakeholders will be served, and the task of the government of Iranian President Ebrahim Raisi will not be important before competing in the global energy market.

* Dr. Umud Shoukry, Senior Adviser on Foreign Policy and Energy Geopolitics, is the author of US Energy Diplomacy in the Caspian Basin: Changing Trends since 2001.

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