Iran Making the News

Jim Brown
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It seems like everywhere I turned this weekend Iran was in the news. U.S. and U.N. sanctions appear to be having the desired effect because the government is becoming increasingly open about the nuclear option.

The sanctions have reduced the amount of gasoline they can buy and the amount of oil they can sell. Reuters said on Friday that Iran crude oil stored on floating tankers had declined to around 20 million barrels. This is down from 40 million in June and 33 million in late July.

Iran normally stores oil on tankers during periods of light demand and then draws down that inventory when demand increases. Normally they would have drawn down this inventory a lost sooner but the sanctions against countries doing business with Iran has slowed their sales.

These floating inventories are costing Iran hundreds of millions of dollars in lost revenue and in daily tanker rental. According to Reuters eight VLCC tankers loaded with either crude or fuel oil have been anchored offshore in the Middle East for more than a month. Iran denies this claim but then they deny everything regardless of the topic. There were 25 tankers storing oil in June.

Demand for Iranian sour crude increases in the northern hemisphere's winter heating season. When refineries produce home heating oil rather than gasoline they can use the cheaper sour crude rather than the low sulfur sweet crude favored for gasoline.

Sanctions have made it difficult to pay for Iranian crude and insure the tankers involved in the transaction. Refineries in countries allied with the U.S. cannot purchase crude from Iran but users in places like China and India still conduct business with Iran.

President Mahmoud Ahmadinejad appears to be singing a different tune on uranium enrichment. When he was in New York last week he was greeted by a decree from Russia, signed by Medvedev, canceling the sale of sophisticated Russian missiles to Iran. Russia agreed to honor the sanctions much to the surprise of Iran.

Iran has the second largest oil reserves in the world but because of their political views and corrupt bureaucracy they produce significantly less than their true potential. Until they agree to halt uranium enrichment and development of ballistic missiles that could carry a weapon they can't order supplies for their oilfields or contract for services.

Prior Iranian sanctions have historically been ineffective but the current round has been devastating. The global community finally realized that Iran was less than a year away from having a nuclear weapon and that changed the tone of the debate. When their ally Russia warned that Iran was heading in that direction it was a sudden wakeup call.

Even Turkey and South Korea have finally relented and blocked trade with Iran.

President Mahmoud Ahmadinejad drew another round of global condemnation for his speech at the U.N. last week when he blamed the 9/11 attacks on the U.S. and Israel. He claims the attacks were carried out by the U.S. government in order to help the U.S. economy and create support for attacks on Islamist countries.

Ahmadinejad expressed hope for a new round of nuclear talks that could resume as early as next month. This is a stark reversal from the "nuclear position talks are dead" he has been espousing for the last three years. His claim that Iran would never give up its right to enrich uranium has now changed to a willingness to discuss an enrichment halt in exchange for fuel from outside Iran. In the past that was never acceptable although Turkey and Brazil inked a swap deal in May.

Ahmadinejad said Iran was no longer interested in starting a new plant to enrich fuel to 20%. That is a change from their 10 plant construction program announced a couple months ago.

Iran is spiraling down the drain and Ahmadinejad's popularity is dwindling. Internal strife is rising as the impact of sanctions increases. Fuel prices have risen and availability is becoming a challenge. Iran said last week that they were making all their own fuel and were self sufficient but nobody believes it. They previously imported up to 40% of their gasoline. It just means there is less to go around and demand has declined due to the higher price.

Iran will eventually buckle under the weight of sanctions but it won't help oil production in the near future since rebuilding their oil industry will take years if not decades.

Jim Brown

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