Iran Oil Revenue Shrinks as Sanctions Sting

Already pinched by sanctions, Iran’s oil revenues dropped sharply in July to possibly less than a third of what it took in a year ago.

Tawke oil field near the town of Zacho in Dohuk province about 250 miles north of Baghdad, Iraq.
Getty Images
Tawke oil field near the town of Zacho in Dohuk province about 250 miles north of Baghdad, Iraq.

Iran exports fell off in the first month after new U.S. and EU sanctions took effect, and its oil revenues plummeted in July to $2.9 billion from $9.8 billion in July, 2011, estimates Rhodium Group partner Trevor Houser.

Houser also estimates, after studying partner trade data, that customer receipts of Iranian crude were about a third the amount of last July, and half the amount of June.

“The challenge is it doesn’t seem to have much of an impact,” on Iran’s behavior, Houser said in a phone interview.

The U.N. nuclear watch dog, IAEA, reported in its quarterly report last week that Iran doubled its capacity to produce higher-enriched uranium in an underground facility, and it continues to block inspectors from verifying that a military site, Parchin, was not used for atomic weapons tests. Iran denies its nuclear program is a weapons program.

“The probability of military action increased, in part because of the IAEA report,” Houser said. (Read More: Iran Rejects IAEA Nuclear Report as 'Political Move')

JPMorgan commodities analysts last week said the possibility of a military strike by Israel increased to 10 to 15 percent in August, from low single digits in January.

“We think conventional wisdom vastly overestimated this risk in [the first half of] 2012, lost interest when missile volleys did not occur by June, and now underestimates the importance of recent threats by the Israeli leadership and the soul-searching public debate taking place within Israel about the wisdom of a preemptive strike,” they wrote.

JPMorgan analysts also say they disagree with some military analysts who see the risk of an Israeli military strike by November in the range of 50 to 70 percent. That prediction is based on the belief that Israel would need to strike before Iran’s program becomes impervious to attack.

Houser said the economic sanctions are working more quickly than some had expected, and the lack of impact on Iran has prompted calls in Washington for even tougher financial sanctions.

“I don’t think we’ll see Iranian exports decline any further for the next couple of months, but the upside for Iran is pretty limited as well—maybe 1.1 or 1.2 million in August and not much more in September,” he said.

Houser said it is likely that some July imports were moved to June before EU sanctions on shipping insurance took effect. He also said there are reports that Japanese and Turkish imports increased slightly in August. (Read More: Track Recent Oil Prices)

View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.
Kaveh Kazemi | Getty Images
View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.

“If oil gets a lot more expensive in the fourth quarter, there’s going to be a strong temptation for Beijing to allow traders to buy discounted Iranian spot cargoes to provide some market relief,” he said.

Customer receipts of Iranian crude in July totaled an estimated 870,000 to 980,000 barrels per day, down from 1.7 million in June and 2.8 million barrels per day in July, 2011, according to Houser’s report.

”Oil prices were down roughly 10 percent in July 2012 relative to same-month 2011 levels. So the year-on-year reduction in Iranian oil export revenue was sharper than the drop in the number of barrels shipped, even if Iran was able to get market price for every barrel,” which was unlikely, Houser wrote. He estimates oil revenue declined by about $2 billion from June levels.

China, India and Turkey all sharply reduced Iranian imports in July from June’s levels, Houser found. India imported 202,000 barrels a day from Iran in July, a decline of 42 percent in one month. China’s imports fell 28 percent to 458,000 barrels per day and Turkish imports fell 71 percent from June levels to 48,000 barrels per day in July. No cargoes went to Japan, South Africa or Taiwan, which together imported 565,000 barrels of Iranian crude in July, 2011.

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