Economy

Sanctions accelerate Iran oil industry decline

By Sina Farhadi

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Iran's Oil Minister Bijan Namdar Zangeneh meets with Iranian MPs in Ahvaz. [Photo courtesy of the Oil and Energy Information Network]

US sanctions targeting Iran's oil industry have triggered a steep decline in revenue that has threatened government solvency, compounding the woes of an industry that was already handicapped by deteriorating infrastructure.

Prior to the imposition of sanctions, Italy, Taiwan, Turkey, Japan, China, South Korea, India and Greece were among the top importers of Iran's oil, economist Ali Nouri told Al-Mashareq.

With the exception of China, there are no major buyers left, he said.

Some countries, such as Italy and Greece, immediately slashed their imports when the sanctions were imposed, he said, even though there was an option to make use of US waivers.

Others, such as India, gradually reduced their imports, eventually halting them completely, Nouri said, noting that even China has reduced its oil imports.

Infrastructure degradation

Infrastructure degradation is another problem Iran's oil industry faces, Nouri said, noting that Iran's Oil Minister has on many occasions pointed to the dilapidated condition of the country's oil facilities.

"Once, in a meeting with members of parliament in Ahvaz, he even said that these worn-out facilities are barely functioning and are difficult to operate," Nouri added, noting that some reports indicate about 25% are no longer usable.

Other experts have said the real figures are likely much higher.

National Iranian South Oil Company chief executive officer Ahmad Mohammadi in December stressed that more than half of the oil equipment and facilities in southern Iran needs to be rebuilt.

"This demonstrates the extent to which Iran's oil industry has fallen into disrepair," Nouri said.

The cost of maintenance has risen as well, he noted, and Iran cannot import many of the components it needs to repair its oil facilities.

According to some estimates, the cost of maintenance and repairs to Iran's oil infrastructure is four times that of other countries -- a figure Tehran-based journalist Mina Bashiri described as accurate.

"According to the president of the Society of Iranian Petroleum Industry Equipment Manufacturers, only 70% of this equipment is produced domestically," she told Al-Mashareq, noting that she doubts the veracity of this figure.

Even if it is correct, she said, production of the remaining 30% of components needed for the oil industry's more advanced sector "is very difficult, and it is impossible for Iran to purchase advanced technological equipment".

'Extreme deterioration'

"The deterioration of Iran's oil industry poses widespread environmental risks and once more demonstrates the regime's incompetence," Bashiri said.

In September, for instance, there was extensive oil pollution off the coast of Kharg Island and Bandar Ganaveh, which lasted for weeks.

It took the authorities a long time to identify the source of the oil, which turned out to be a leakage from a dilapidated underwater pipe, she said, noting that the oil company was unable to clean it all up.

In another case, the Masjed Soleyman earthquake in July of last year caused serious damage to facilities at an oil field in the area.

"It was said at the time that the facility's extreme deterioration had been the main cause of the damage because the earthquake's magnitude was not high enough to normally cause such damage," Bashiri said.

Meanwhile, Iran's Islamic Revolutionary Guard Corps (IRGC) remains heavily funded and so are its arms in the region, including Lebanon's Hizbullah, which has pushed many Iranians to take to the streets on several occasions over the past year to protest the regime's neglect and incompetence.

Another problem Iran's oil industry is facing is the deterioration of its maritime fleet, she said, noting that the National Iranian Oil Company has around 60 large tankers, many of which need repairs the authorities are unable to undertake.

"Iran has been forced to store millions of barrels of oil on these ships and in the water, which is very dangerous," she said.

The oil industry's fleet has the capacity to carry 120 million barrels, half of which now have been used to store oil on the water, she said, noting that the size of this unwanted reserve is increasing every day.

Despite the sanctions and Iran's inability to export oil, extraction operations continue, because if oil fields are shut down, it may not be possible to rebuild the extraction facilities, Bashiri said.

"For these reasons, I believe the pressure that has been imposed on Iran's government by the oil embargo is unprecedented in our history," she said.

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