Iran Builds Storage in Jask and Allows Private Sector to Export Oil
Anwar Altaqi – Esam Aziz
Iran has made two interesting moves during the lead up to the re-imposition of U.S. sanctions on November 4th, and both developments deserve to be thoroughly examined. Firstly, Iranian companies signed a contract to build infrastructure for the storage of 10 million barrels of crude in the southern port of Jask on a build-operate-transfer basis. Tehran is working to gather the necessary elements for infrastructure for its second oil export terminal, the National Iranian Oil Company announced on its website.
The project will be completed in three years and will serve to bypass the Strait of Hormuz.
Jask is a port in Hormozgan province on the Sea of Oman. A littoral area of around 5,000 hectares, 65 kilometers west of the town of Jask, has been allocated for oil, gas, refining, and petrochemical projects. Twenty metal tanks will be built to store light and heavy oil received from a 42-inch, 1,100-km pipeline. The oil will be pumped into future marine pipes and floating buoy mooring facilities for export. The area allocated to the storage facility is around 6 million square meters and can be expanded for storage of up to 30 million barrels. The contract signed was to carry out the first phase of the major plan. A second phase is designed to allow for10 million barrels of storage there. Jask will receive one million barrels per day (bpd) of crude from the Goureh oil terminal in the southern province of Bushehr. Iran has been planning to create an oil-export hub beyond the Strait of Hormuz for quite some time.
The second development is that Iran plans to start offering oil for export via its national stock exchange in a few days, as of the time of this writing, according to the head of the state oil company and Deputy Oil Minister Ali Kardor. Iran will be offering one million barrels via the stock exchange, with all of the barrels bound for exports, Kardor, who is managing director of the National Iranian Oil Company (NIOC), said. Last July, Iran’s First Vice-President Eshaq Jahangiri said that the country would be looking to offer oil via the stock exchange because of the U.S. sanctions on Iran that will restrict its oil exports.
However, these two steps will have very little effect, if any, on the bite of U.S. sanctions against Iran. Iran continues to claim that it has the means to “defeat” the restrictions, continue to sell its oil, and “easily” receive the revenues from oil sales. Kardor said that Iran has no plans to reduce its oil production, that NIOC has access to all of its revenues, and that it “easily collects the money from selling crude oil.” His statement boils down to wishful thinking. In just the Asian market, imported Iranian oil hit a two-month low in August. Exports to South Korea fell 80 percent before they reached zero in September.
China, India, Japan, and South Korea last month imported 1.57 million barrels bpd from Iran, according to the data. That was down 4.1 percent from August 2017, and marked a decline of about 300,000 bpd from the previous month. Overall purchases of crude from Iran by the four countries are expected to drop further in the coming months. Washington is pushing allies to cut Iranian oil imports to zero once the U.S. sanctions kick in next month. Japan has joined South Korea in temporarily halting Iranian oil loadings as it remains unclear whether the U.S. administration will grant Tokyo an exemption from the sanctions, the head of the country’s refinery association said last week.
Kardor revealed a part of Iran’s intentions in Jask. He explained that the new storage facilities on the Sea of Oman will be devoted to feed refineries built in the location. “The tanks will gather oil from West Karoun, shared oil fields, and central oil fields,” he said. Kardor also said Iran would sign an upstream deal with an unnamed “Russian consortium” under its new contract model.
It is clear that Iran is laying the foundation of evading the Strait of Hormuz, as we discussed in a previous issue of this bulletin.
As for selling oil via the Iranian stock exchange, we can explain the idea and its motives only in basic terms, as the details have not yet been made public by Iranian officials. The private sector can purchase oil from the Tehran stock exchange and then export it through private means. The motive is to enlist the private sector in schemes to avoid sanctions. If we assume that the Islamic Revolutionary Guard Corps (IRGC) arranged to smuggle oil to Iraq, for example, catching the smuggled oil would bring negative consequences on Baghdad, as the sold oil should carry a certificate of origin. But if the smuggled oil is bought by a private Iranian company that works as a cover to the IRGC, Tehran can sell it to a private Iraqi company. In this case, forging documents of origin would not implicate Iraqi officials.
But this was happening, at least in essence, during the first round of sanctions. The new step will add a marginally small space to avoid tracking of oil shipments or to shed any official responsibility on shadow buyers. In other words, the new measure to trade oil in the national stock exchange will not significantly effect Iran oil sales, but will use “private” entities to cover all official involvement on both sides, buyers and sellers.
Tehran is now regularly making desperate attempts to thwart sanctions. Will the new tactics work?
It depends on the objective. If Iran aims to avoid the bite of sanctions altogether, this will be “mission impossible.” At best, Iran can reduce the impact of sanctions, but still, in a marginal way quantitatively.