Oil, gas and Iran economic analyst
Further evidence has emerged that Russia is competing with Iran and Venezuela for oil markets in China and India, according to shipping analytics firm Vortexa.
A report the company issued on July 21 says China appears to be hesitant so far to take huge volumes of Russian crude in contrast to India, with limited players involved, reducing the available market.
Iranian crude oil and condensate exports declined over the first half of 2022 after an initial surge in January 2022, as exports fell 160kbd (thousand barrels per day) from the first quarter to 820kbd in the second quarter, when Russia started to capture Iranian and Venezuelan oil markets in China.
But the overall reduction in Iran’s exports to China have not been as dramatic as in May, when another shipping analytics company Kpler reported that Iranian sales had halved in that month.
Before the Russian invasion of Ukraine, Iran's exports had risen sharply in January, the highest month on record since United States’ sanctions were imposed in 2018, surpassing 1.1mbd: "This contributed to a strong Q1 2022 where exports averaged 980kbd, a 130 kbd increase from Q4 2021.”
Initially, US sanctions reduced Iranian oil exports to less than 300,000 bpd, but since President Joe Biden assumed office in January 2021 and signaled his readiness to negotiate with Iran, shipments increased. China seeing a different US strategy began circumventing Trump’s sanctions and more than tripling imports from Iran.
Exports have since moved flat-to-lower, averaging 850kbd over February to June 2022, as "Chinese buyers have benefitted from increased competition between Iranian and discounted Russian crude".
The report added that meanwhile, Iran’s onshore crude inventories have broadly increased, after a 10mb drawdown from Q4 2021 to Jan 2022: "Q2 2022 crude/condensate exports declined 300kbd (in June) from January, coinciding with a 5mb stock build-up over the same period.
Tankers previously carrying Iranian crude switch to Russian trade
As of July 18, Vortexa tracked 11 unique tankers, mostly medium size Aframax vessels with around 750,000-barrel capacity, which have loaded Russian crude/products since April 2022, having previously carried Iranian crude. The 11 tankers account for 16 Russian oil liftings since April.
VLCCs (very large crude carrier with 2 million barrels capacity) previously carrying Iranian crude have also recently started carrying Russian oil, spurring its exports by 250kbd for first half of July.
The report added that as more companies scale back from carrying Russian crude/products, those familiar with the sanctioned crude trade will continue using their tankers to assist Russia in exporting oil East of Suez.
Dark ship-to-ship transfers of Russian Urals in the Atlantic are growing and involve tankers which have previously carried Iranian crude. As of 18th July, Vortexa tracked seven VLCCs and seven Aframax’s which have been in the Atlantic in recent weeks with their AIS (identification transponder) off. Of these, three VLCCs and two Aframax’s have previously carried Iranian crude.
Seven traders contacted by the agency said they had continued using Binance after the company in November 2018 told traders in Iran to close their accounts, while 11 others who failed to respond to Reuters confirmed on their LinkedIn profiles they had also continued trading crypto-currencies through Binance.
Iran has a complex relationship with crypto-currencies, which have both helped hide various kinds of trade from United States’ eyes and opened up opportunities for illegality. In May the Intelligence Ministry announced it had blocked over 9,200 accounts, belonging to 454 people, used for illegal or undeclared transactions of currency and digital currency, with the relevant trades amounting to 600,000 billion rials, around $2 billion.
However, many reports in Iranian media have indicated that large scale crypto mining has been taking place by influencial or well-connected networks and some Chinese companies have also been present in Iran using cheap, subsidized electricity.
A 2021 study found that 4.5 percent of global Bitcoin mining – worth then around $1 billion – was in Iran, leading to pressure on electricity supply in peak times and to repeated government assurances that the sector would be better regulated.
‘Proactive approach’
Binance, which leads the world’s $950 billion crypto industry, is owned by a holding company based in the Cayman Islands and therefore not liable to primary US sanctions. But ‘maximum pressure’ gave the US government powers to sanction third parties dealing with Iran’s banking sector, including the option of shutting them out of US markets.
Monday’s Reuters report suggested that the withdrawal of Iran-based traders from Binance came after September 2021, a month after the exchange tightened checks, including bringing in a requirement that customers verify identities rather than just register with an email address.
In January, Reuters reported interviews with former Binance senior employees, internal mail and mail with national regulators, revealing earlier concerns over lax compliance. This was despite earlier claims, including by the chief financial officer that the exchange had a “proactive approach to detecting and squashing money laundering,” and long after Binance announced in August 2019 Binance that it included Iran – along with Crimea, Cuba, Syria, and North Korea – among “hard five sanctioned” jurisdictions.
Evading US monitoring was attractive in Tehran. “Cryptocurrency is a good way to circumvent sanctions and make good money,” Reuters was told by a trader named as ‘Ali,’ who said he had used Binance for around a year.
Tightening US pressure?
The continued presence of Iranians in the exchange was well known in the company, and regularly joked about by insiders. By September 2019, Tehran was among the top cities for followers of Binance's Instagram page, ahead of New York and Istanbul.
Now with 120 million users offered access to a variety of digital currencies and derivatives, Binance was founded in 2017 by ‘CZ’ – its chief executive officer Changpeng Zhao – and last month hired soccer star Cristiano Ronald to help with promotion.
The reported withdrawal of Iranian traders from Binance since last year, perhaps with the company under US pressure, came as negotiations have continued between Iran and world powers over restoring the 2015 Iran nuclear deal and easing the US sanctions introduced when Washington quit the agreement in 2018.
The apparent tightening has occurred under the administration of President Joe Biden, which wants to restore the 2105 deal, rather than under previous President Donald Trump. Monday’s Reuters report highlighted US government expectations that companies should use tools to prevent traders concealing their locations through VPNs (virtual private networks) – which are common in Iran both to evade domestic screening and disguise international transactions.
A day after Fars claimed that Iran’s oil exports in 2022 will reach $36 billion, it published an article quoting senior officials that contrary to other reports, Iran relies very little on barter in exchange for its oil.
There have always been suspicions and some evidence that Iran did not receive much cash payments for its crude exports banned by United States’ sanctions, and it received goods, especially from China, its biggest customer. There was evidence during international sanctions from 2011-2016 that Iran imported sometimes useless merchandise instead of getting paid in cash for the illicit oil exports.
Fars quoted oil minister Javad Owji speaking in a television program, who said that “All oil incomes are received at the due date. We receive 80 percent in cash and we import medicines and essential goods with the remainder.”
Owji underlined that the 20 percent of barter was not imposed on Iran, but were cargos ordered based on need and expected quality of goods.
Mohsen Khojasteh-Mehr, general manager of the National Oil Company of Iran confirmed the same information to Fars, but slightly in more vague terms. “Oil export income returns to the country, which means receivables are received,” he said.
Suspicions that Iran might not have been receiving cash for oil exports are reinforced by the financial hardship the government faces. Many government-sector workers have not been paid for months while the national currency has lost 25 percent of its value since March.
Facing a large budget deficit estimated to be at least a 50—percent shortfall, the government stopped food import subsidies in early May. Some officials have said the subsidy was costing $15 billion a year and was expected to reach $20 billion with rising global inflation.
The move pushed food and other prices higher in May and June bringing the overall official annual inflation rate to 55 percent while food prices rose by 80 percent compared with May 2021. This led to many protests around the country.
Fars said that oil revenues are collected in various ways as third-party US sanctions restrict Iran’s banking international banking options.
Creating new and undisclosed bank accounts, networking through the informal hawala system or money exchangers, using the potential of smaller banks, barter and receiving payment in the national currencies of oil importers were the main methods used, Fars said.
After former US President Donald Trump withdrew from the 2015 nuclear deal, or JCPOA, in May 2018 and imposition of sanctions, Iran’s oil exports declined to almost 10 percent of what they were before. The government relied on the National Development Fund, or its foreign currency reserves, to finance essential needs.
Amid its economic crisis, Iran has so far refused to make a deal with the United States to revive the JCPOA and lift the sanctions. This has led to demands by politicians and people for agreeing to the US terms and the hardliner government backed by the IRGC is engaged in a daily campaign to convince the public that overall situation is good and there is little need for a nuclear deal.
Oil exports began to recover in November 2020 as Joe Biden won the US election and signaled his intention to open talks with Iran to revive the JCPOA. Iran’s oil shipments kept rising in 2021 from around 250,000 barrels per day to more than 750,000, raising its income and claims that it had defeated US sanctions.