Who actually benefits from sanctions on Iran?
Since President Trump announced the US withdrawal from the JCPOA, Washington has been pressing allies to end all imports of Iranian oil by a November 4 deadline.
Moreover, in a briefing on June 26, a senior State Department official was quite firm that the US doesn't anticipate offering any extensions or waivers to that timeline. This statement created a feeling of emergency, and oil prices jumped by more than 3.5 percent. Iranian Oil Minister Bijan Zanganeh also blamed President Trump's actions for the high oil prices during an interview with CNN. Ultimately, the price hike serves the interest of oil-dependent economies like Saudi Arabia, Russia and Iraq, especially since they can serve as substitutes for Iranian oil.
Iran is the third-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) and in May 2018 exported about 2.7 million barrels per day (bpd) of crude oil. China, one of its biggest customers imported almost 27 percent of total Iranian exports, followed by India with 16 percent, South Korea with 10 percent, Japan with 7 percent and Turkey with 10 percent. Considering that Iranian exports dropped to about 1-1.5 million bpd during the 2013-2015 period of strong economic sanctions (from around 2.5 million bpd in 2011 to some 1 million bpd at the end of 2013), depending on how many countries follow the White House's call for sanctions today, we might expect Iranian exports to fall by between 200,000 bpd and 1 million bpd.
This shortfall would cause countries in the region to have to look to other suppliers to fill in the gap. For example, abstaining from Iranian oil would leave Turkey at the mercy of Russia.
In 2017, Turkey imported 24.9 million tons of crude oil in total, mainly from Iran (almost 50 percent) and the rest from Iraq, Russia, Kuwait and Saudi Arabia. Considering the fact that Iraq, the other potential oil supplier that can substitute Iranian oil, represents a more volatile and risky choice. If Turkey goes ahead and implements the restrictions demanded by the US, Russia will ultimately supply more than 60 percent of Turkey's oil, in addition to already supplying the majority of its natural gas.
Once we add into this mix the ongoing Akkuyu nuclear power plant project that will be built and operated by Russian State Nuclear Energy Agency Rosatom, we end with a Turkey that risks finding itself almost entirely tied to Russia - a complication for its NATO obligations, if nothing else. Taking into consideration those circumstances, on June 29 Turkish Economy Minister Nihat Zeybekci said that “the decisions taken by the US are not binding for us. Of course, we will follow the United Nations on its decision. Other than this, we will only follow our own national interests.”
Another winner if US sanctions are adopted widely would be Saudi Arabia. A drastic reduction of Iran’s oil exports (for example, by more than one million bpd) would likely boost Saudi production to numbers not seen since the late 1960s, in an attempt to fulfill market demands.
For its part, South Korea announced that they will end Iranian crude imports by the end of July, halting all shipments. According to Bloomberg, that leaves Iran with few options other than convincing China, its biggest customer, to buy more Iranian oil. This could create an unbalanced relationship between two countries, forcing Iran to be become over-reliant and dependant on China. This unequal relationship could be positive for China, as it might make it the biggest single buyer of Iran’s crude, giving it powerful leverage over the Iranian economy as a whole.
This article was originally published on Oilprice.com
