Iran Faces Oil Price War, Plus New Calls for Sanctions

File image courtesy NIOC

By MarEx 2016-03-09 21:40:52

In an open acknowledgment of fierce price competition between Iran and other foreign oil producers, Ali Shamkhani, the secretary of Iran's Supreme National Security Council, said Wednesday that the “oil price war against Iran” will backfire on unnamed “certain states,” reported Iranian state outlet Fars.

"Certain states tried to curb Iran and the resistance. They created ISIL and helped reduce oil prices with oversupply. Just as the way the terrorist group of ISIL has turned against them, the oil price cut campaign will also backfire," he said, in comments at a national economic summit in Tehran.

Fars described the pricing movements as a “plot against [the] nation,” and referred to previous comments by President Hassan Rouhani, who had blamed other OPEC members for trying to scuttle the agreement to end western nuclear sanctions on Iran. Fars pointedly noted that Rouhani had criticized “Saudi Arabia and certain Islamic countries” for their views on the lifting of sanctions.

The rhetoric marks a heated turn in Iran's commercial relationships with its neighbors. As recently as February, Tehran had announced a readiness to negotiate with Saudi Arabia over oil prices and market conditions, and had expressed public support for a Saudi-led initiative to freeze output (although it said it would not join in that effort).

An American energy analyst confirmed that the price war is real. While Tehran has strenuously denied any discounts below its Official Selling Price numbers (OSPs) for individual contracts, it has nonetheless been dropping the OSPs themselves, keeping pace with or even undercutting Saudi prices.

In addition to a dispute over market share, the two regional rivals are also facing off on major geopolitical fronts, with sponsored forces effectively engaged in multiple proxy wars around the Middle East. Saudi Arabia severed diplomatic ties and banned Iranian airline flights and shipping earlier this year, following the burning of the Saudi embassy in Tehran in January.

With serious disagreement on the ground, and a new war of words, the race to the bottom on crude pricing could continue to damage both nations' economies, and many others as well – but only if Iran can get its oil to market.

The National Iranian Oil Company claimed this week that exports have risen to 1.8 million barrels per day, up 30 percent from the prior month, but it is unlikely much of the volume was sold into the EU. Reuters reports that only four tanker shipments have gone west to Europe so far since sanctions were lifted. That equates to only around five days' worth of sales at the levels of pre-2012, when European buyers were purchasing as much as 800,000 barrels per day from the country.

A lack of dollar clearing, the absence of an established mechanism for non-dollar sales and the reluctance of banks to provide letters of credit to facilitate trade have been obstacles since sanctions were lifted.

European oil trading sources told Reuters that Iran had not shown flexibility on price or on terms since its reentry into the market, and that Tehran could be holding back on offering discounts so as to avoid escalating the price war.

Separately, U.S. Democratic presidential front-runner Hillary Clinton on Wednesday called for renewed sanctions against Iran after the Islamic Republic brushed off U.S. concerns and test-fired two ballistic missiles that it said were designed to be able to hit Israel.

Iranian state television showed footage of two Qadr missiles being launched from northern Iran, which the Islamic Revolutionary Guards Corps said hit targets 870 miles away.

Iranian agencies said the missiles were stamped with the Hebrew words, "Israel should be wiped from the pages of history," though the inscription could not be seen on any photographs.

Clinton, a former secretary of state under President Barack Obama, said she was "deeply concerned" by the tests, the second round of Iranian missile launches in two days.

"Iran should face sanctions for these activities and the international community must demonstrate that Iran's threats toward Israel will not be tolerated," said Clinton, who is ahead in the race to be Democratic nominee at the November 8 presidential elections.

Her call for sanctions reflected a tougher line against Iran's recent missile activity than that taken so far by the White House, which said it is aware of and reviewing reports of the Iranian tests, and would determine an appropriate response.