Iran crude for Asian Market: Future Perspective

Recent Developments in the Iran Crude Oil Industry

• Since 2021, the Islamic Republic has been doubling down on oil industry research & development. Besides establishing several research collaborations, licences were approved for the creation of the Oil and Gas Industry Innovation and Technology Park, linking Iran’s technological and commercial sectors.
• Between 2014 and 2020, the ministry awarded universities and research centers with over €80 million, or US$ 96.5 million, to conduct research & development activities for enhancing Iran’s oil & gas sector
• In March 2023, the Iranian oil minister Javad Owji announced that the country is set to revise its oil exports projections for the current year. As of the 2022-2023 financial year, a total of 83 million additional barrels were exported.
• With the deployment of a drilling mast in the vicinity of the DP-R1 platform of Resalat Oilfield, located in Lavan region in south of Iran, a giant step has been taken to increase the country’s oil production in the oilfield.

Oil Exports to remain Robust, despite U.S Sanctions, China a Sweet Spot

• Recent months have seen an incline in crude oil exports, on the back of higher shipments to countries such as China. As of February 2023, an average of 1 million barrels were registered on a daily basis
• While the number is far below the over 2.5 million barrel per day it exported in 2018, the output is still impressive, especially in the wake of stringent U.S sanctions
• China is expected to remain a sweet spot for Iranian oil, according to experts. A lot oil shipments have been heading to China via Malaysia
• China is Iran’s biggest oil customer. To get around sanctions, most of Iran’s crude exports to China are rebranded as crude from other countries.
• In 2021 China only constituted 28% of Iran’s total oil exports, with Russia, rebranded Malaysian oil and other countries such as the United Arab Emirates and Syria making up the difference.

Other Asian Contenders

• With the prospect of a new Iran deal, South Korea held working-level talks on resuming imports of Iranian crude oil and unfreezing Iranian funds in February 2022
• A major South Korean refinery is watching the developments at the nuclear talks, as Iranian crude oil is cost-competitive and easy to process compared with other grades such as Mexican oil.

After a long haul of six years, Iran is expected to offer its oil to Asian market at a discounted rate at par with Saudi Arabia. The reason for sharp fall in Iranian crude price is attributed to the reduced price of Arab Light crude for Asia by the world’s largest oil exporter, Saudi Arabia. Further, on global level, Brent crude also witnessed its lowest fall in four years. Sell of crude from Iran to Asian market is expected to start from November. The sale offer has been initiated by the state owned Iranian company National Iranian Oil Co for Asian buyers. This has further intensified the already active oil price war. It is imperative to assess that the Asian market is a competitive landscape for the Middle Eastern oil producers. However, China’s reduced economic growth has lowered the pace of demand growth.

Iranian company, National Iranian Oil Co (NIOC) has announced to sell its best crude to Asian market at a discounted rate of 82 cents per barrel to the average of Oman and Dubai. Earlier; the price of Arab Light for Asian market has been reduced in the range of USD 1 per barrel and USD 1.05 per barrel to the average of Oman and Dubai crudes. Strategically, this price cut-down is ordained with two perspectives: one suggests the initiation of the price war among members of the Organization of Petroleum Exporting Countries, who are expected to thrive and increase their respective market share. The other theory, however, suggests that Saudi Arabia has cut down its oil prices to aid the Asian refiners for enhancing margins. The consequences on global level are also imperative to be taken into consideration, for instance, in West Africa; OPEC members are witnessing lower demand for their crude oil with greater price competition. Whilst Angola sold about 85 percent of the targeted cargoes, Nigeria was not able to meet its targeted sale. Further, OPEC members unanimously opine that as their long term interest is devoid of price war associated strategy, it is unlikely that the price war would be initiated, at least from their end. However, crude prices from Kuwait and Iraq are yet to be released and it’s expected that the reduced pricing from Kuwait and Iraq will have significant effect on the crude price market.