Iran Facing A Growing Boycott

Jim Brown
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Iran is slowly finding itself cutoff from the rest of the world due to increasing pressure from the U.S. and European countries. Nearly every day now another company announces it is cutting ties with Iran in order to avoid having the nations organizing the boycott cut ties with them.

Iran is already having trouble selling its oil and currently has up to 38 million barrels stored in tankers in parking orbits in the Persian Gulf and outside ports where they can still sell oil. Iran's crude oil is heavier and sour than the light crude preferred for making gasoline.

The weaker demand for Iran's sour crude, plus unattractive price formulas and the threat of sanctions have combined to make selling their crude a tough task according to the IEA. Iran increased production in April to 3.75 mbpd and much of that ended up in floating storage. Bloomberg estimates Iran produced more than 500,000 bpd above their OPEC quota.

Iran typically leases tankers early in the year to store excess production when demand is weak. As the summer driving season increases demand Iran already has oil in tankers waiting to go in any direction. However, in 2008 it took Iran five months to sell its excess tanker cargos. With fewer buyers in 2010 due to the boycott it may take them even longer to sell the oil this year.

The list of companies no longer selling to Iran is rapidly expanding. The U.S. and its European allies have been increasing the pressure on companies still doing business with Iran in hopes of convincing Iran to give up on its nuclear ambitions.

Companies recently announcing they were abandoning Iran include:

Italy's ENI, France Total SA, Russia's LUKOIL, Malaysia's Petronas, carmaker Daimler, insurers Munich Re and Allianz, Indian refiner Reliance Industries, oil trading firms Trafigura and Vitol. Also, Ingersoll Rand, Smith International, Caterpillar, Siemens, commodity trader Glencore, chemical manufacturer Huntsman, accounting firms KPMG, PricewaterhouseCoopers and Ernst & Young.

I was reading an interview with a prominent Jewish analyst this week in reference to the potential for Israel to attack Iran in an effort to destroy the nuclear sites. He said the risk was increasing BUT so was the risk that the U.S. would shoot down Israeli planes in order to prevent another Arab-Israeli war and to prevent Iran from being forced to strike back at anyone in reach in order to save face.

I was astounded that the U.S. might consider shooting down Israeli planes but apparently this is a valid option being discussed. The U.S. has warned Israel not to act unilaterally and President Obama has turned a cold shoulder towards Israel in favor of his new Muslim friends. I don't want to launch into a philosophical debate here but the world, as I know it is changing.

Gulf Update

BP has lowered the second containment dome called a "top hat" to the ocean floor but now they have decided to try something else first. The current plan calls for insertion of a smaller pipe into the broken riser that is spewing oil and gas into the gulf.

The riser is a 21-inch pipe that normally goes from the blow out preventer on the ocean floor to the rig floor 5,000 feet above. The drill pipe goes through this riser when drilling operations are in progress. When the rig sank the 5,000 feet of riser collapsed in a pile on the ocean floor. In the process of collapsing the 5,000 foot long pipe folded like an accordion into a pile of twisted metal. Some of the bends simply pinched off the flow of oil and others bends broke completely. The big leak is at the end of the first section of that broke off from the rest.

By inserting a pipe with a slightly smaller diameter as well as an outside plug that will seal around it, BP hopes to avoid the problem with the ice crystals that killed the first containment dome. If they can get the pipe inserted, sealed and connected to the surface they can avoid the water all together.

Obviously it is going to be a challenge because the riser is just a lose section of crumpled pipe and any movement in the connecting pipe from wind and waves could cause the connection to break. During regular drilling the riser is connected to the 450 ton blow out preventer that is cemented to the ocean floor plus the weight of the 5,000 feet of pipe. It would take a major blow to force a disconnect there.

Compared that to a loose pipe laying on the ocean floor. There will definitely be some additional problems to overcome.

BP claims it is also getting closer to the junk shot on the BOP. That means injecting material like shredded tires into the bottom of the BOP in hopes of clogging up the partially closed valves on the top of the unit.

In the "I did not know it was possible" department, BP said it x-rayed the BOP and determined the valves are partially closed and actually restricting the flow. They also determined from a gamma-ray inspection that the outside of the device had retained structural integrity.

In the stranger than fiction category a BP official said: a robotic submersible suddenly started receiving a signal from a wireless gauge down in the well. They determined from those readings that the BOP was actually working although not 100%.

Never a dull moment around that wellhead with 10 robotic subs working the problem.

Jim Brown

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