Even If West Sanctions Russian Gas, Iran Cannot Help Europe Out

In a television show on Saturday, the head of Iran’s Headquarters for Combating Smuggling of Goods and Foreign Exchange, Ali Moayedi Khorramabadi, said the figure was over $25 billion about 10 years ago, accounting for almost one-third of the country's total trade.

He noted that due to political conditions and economic sanctions imposed on the Islamic Republic trade is not conducted in accordance with international laws, therefore a lot of commodities are smuggled in or out of the country.

He did not clarify whether the figure he mentioned includes goods that enter or exit the country with some sort of authorization by the government or the Revolutionary Guards or other organizations that help Iran circumvent United States’ sanctions.

Moayedi said that some of the smuggled commodities uncovered by authorities, such as flowers and pesticides, are destroyed but some of them such as home appliances and clothes are sold in the market.

He added foreign cars seized by the anti-trafficking organization are usually destroyed because no other country agrees to buy them due to a lack of proper registration and documents.

In January, the Washington Post uncovered a large diesel smuggling network, revealing the role of the Revolutionary Guard in the illicit trade.

Bloomberg quoted Rystad Energy Chief Executive Jarand Rystad as saying that the conflict could jeopardize one million barrels of crude that flows through Ukraine and the Black Sea, but “long-term disruptions could be far more significant.”

Adi Imsirovic, a Senior Research Fellow at the Oxford Institute for Energy Studies and former oil trader, said in a report published by Reuters that he is surprised the price has not jumped to $130 per barrel already. One reason could be that simmering tensions for the past months already contributed up to $10 a barrel to recent price increases.

But on Friday prices that had spiked above $100 a barrel retreated, signaling some reassurance that the West does not intent to sanction Russian energy supplies. Half of Russia’s crude oil exports, 2.3 million barrels a day go to the West.

Russia supplies ten percent of the world’s oil and is the second largest natural gas producer after the United States. Europe depends on Russia for close to 40 percent of its natural gas consumption.

President Joe Biden signaled on Thursday that he may release more supplies from strategic reserves in coordination with other countries, to address any shortfalls.

Analysts also raise the possibility of a nuclear agreement between Iran and the United States that could end Washington’s oil export sanctions on Tehran and help control prices. But Iran has little extra capacity, which is already not being utilized and exported. However, Imsirovic noted that Tehran has stockpiled 80 million barrels on tankers at sea that could be an immediate partial help.

An agreement between the US and Iran, however, remains uncertain as signals indicate Tehran insists on its tough conditions and US says “serious issues” remain unresolved. Statements by Iranian officials have not signaled of a softening of their position. Tehran still demands more US sanctions to be lifted and on Friday its nuclear chief said the country will continue to enrich uranium at 20 percent, even if sanctions are lifted.

It is not clear if Washington will make more concessions at this point, although the need to increase oil supplies looms large when the United States is confronting rising inflation.

Saudi Arabia and other Middle East producers could try to increase output too. Analysts are not sure whether low production by the Saudis is intentional or the result of technical limitations. The kingdom reduced output in 2020 when demand slumped with the pandemic. Some say that it is not easy to revive reduced production. But if Riyadh is holding back production that could also be related to Iran.

Saudi Arabia is not thrilled by the Biden Administration’s attempts to reach a nuclear deal with Iran, which many see as a weak arrangement that would not prevent Tehran from getting close to producing nuclear weapons. Many regional countries see the specter of a nuclear Iran as a serious threat to their security.

There is also the issue of Tehran’s support for Yemen’s Houthi rebels that fight a Saudi-led coalition that intervened in the country to support the internationally recognized government.

An unnamed informed source told Mehr news agency on Saturday that the resumption of imports was not unexpected due to the imbalance between demand and supply.

The source added that Iran is importing diesel from countries to the north along the Caspian Sea, without elaborating on the exact supplier. Russia could be one possible source.

According to the source, gasoline imports will also start soon because consumption will exceed production at refineries.

Mehr says according to data by the National Iranian Oil Refining and Distribution Company (NIOPDC), the amount of gasoline production and demand will be equal in a couple of weeks.

NIOPDC head Keramat Veis-Karami recently said that the average daily gasoline consumption increased by about 15 percent this year compared with the figure in the previous year when there were frequent pandemic restrictions.

The report added that slowdown in the process of building refineries and the rise in consumption are the reasons for Iran to become a gasoline importer. The severe shortage of natural gas that has led to an increase in diesel consumption in power plants and industries can be another factor. American sanctions also play a role in slowing down refinery upkeep.

However, in January, the Washington Post uncovered a large diesel smuggling network, revealing the role of the Revolutionary Guard in the illicit trade.

The last weeks of the year in Iran are traditionally the time that the prices jump in anticipation of more demand and this year is no exception, especially with general inflation hovering around 40-percent for the past year making the situation worse.

Food prices have been rising much faster, with government figures showing above 60-percent inflation at retail level in 2021, compared with 2020.

Sugar and different types of rice are usually items with highest price increases followed by different kinds of meat, chicken and eggs as well as cooking oil.

Each year the government announces some measures to control the prices such as supplying subsidized food items, distributing basic goods through state-owned chain stores, banning exports or punitive measures for wholesale middlemen or retailers who don’t abide by state-regulated prices. Usually, all such measures turn out to be ultimately in vain and only lead to more tension in the market or corruption by state companies who control the distribution of sugar, rice and other basic food items.

In recent months, prices for rice – which is the main staple food in Iranian diet -- experienced a lot of fluctuations, reaching to about 1,000,000 rials (about $4) per kilogram, which is enough for five to eight people for one meal and many families eat some rice-based meals twice a day. However, an average Iranian wage-earner gets $100 to $200 per month.

To regulate the rice market, the government recently started fixing the price of this commodity, and the Agriculture Ministry announced a price list for different types of Iranian and foreign rice.

But still consumer prices at grocery shops are different from those announced by the authorities. When the ministry’s inspectors confront the wholesalers and retailers about their higher prices, their response usually is that they rather close their businesses than sell their goods at government prices and lose money. Somewhere in the supply chain prices go up and especially retailers complain that they pay much more than the official price.

In addition to rice, the red meat market is also in so much turbulence that the government has banned the export of live cattle to prevent rising prices.

According to data provided by the Trade Ministry, the price of one kilogram of beef in December was over 40 percent more than that of the corresponding period in the previous year.

The head of Cattle Farmers Association, Ahmad Moghaddasi, told Mehr News that producers’ prices have not changed in recent months, but retail prices have jumped dramatically.

He criticized the authorities for failing to control the prices in the meat market, stating that “unfortunately the brokers and intermediaries are stronger than the authorities,” therefore they benefit from the losses of both producers and consumers.

The highest price increase is related to sugar, which jumped by 76 percent compared to October 2020 as the government stopped allocating cheap dollars for its import.

Since April 2018, Iran has been providing US dollars to importers of essential goods at the preferential rate of 42,000 rials, while the dollar has steadily climbed against Iran’s rial, reaching 290,000 in November.

This was in fact a food subsidy first provided when looming US economic sanctions in early 2018 were already creating high inflation in the country.

In an interview with ISNA news agency published on Thursday, Abbas Argoun said that the 40-percent rate of annual inflation and the growth of operating expenses in various sectors have left banks with no money to finance industrial producers.

Financing is one of the main components for enterprises to remain afloat, “both for the production and current expenses”, he said, noting that “the 40-percent inflation rate in the country means that an enterprise needs to spend 40% more just to be able to repeat last year's performance”.

Argoun added that financing the manufacturing sector through investment or the stock market is not possible for many companies, so the banking system is tasked with the burden of providing the capital, “and due to the limitations of the capital market, this is very difficult”.

He noted that “the banks are the only hope for economic enterprises” while they are “faced with serious problems due to internal and external pressures, practically leaving them with no money to give to producers and economic enterprises”.

On Monday, Speaker of Parliament Mohammad Bagher Ghalibaf informed lawmakers that he received a letter from Khamenei asking the legislature and the presidential administration not to make financial demands from banks that are beyond their resources to fulfill.