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But is their ability to produce or sell refined vs unrefined oil effected by the sanctions? Maybe not directly; maybe in how they're able to access funding for

by bsanr2 6y ago

But is their ability to produce or sell refined vs unrefined oil effected by the sanctions? Maybe not directly; maybe in how they're able to access funding for infrastructure, for example?

rckoepke 6y ago
Partially. The USA offers some of the best technology for extracting and refining oil, but no US citizens or companies can offer their expertise to Iran. However, most oil companies are international and have headquarters in multiple countries - so quite a few large oilfield service companies can do business with Iran as long as they don't cheat the system to provide USA-based services. Schlumberger, a French/Texas/Dutch/UK company, earned themselves the largest international sanctions fine ever for skirting the rules. It wasn't illegal for them to work with Iran, even though they are headquartered in Houston, TX. However, they used US-based personnel and assets and now are barred from doing any business with Iran as part of the penalties. So Iran does find it difficult to get some of the latest technological advantages. That said, their geology doesn't demand super high tech solutions to extract oil. And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand. The details of the sanctions have changed a lot over the past 10 years. Between 2013 and 2016, sanctions were globally supported and it was extremely difficult for Iran to sell its oil. Now it's just a few countries embargoing Iran, so Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices.
- smnrchrds 6y ago
  > Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices. Not really. I am no expert, but my understanding is that US sanctions bar Iran from accessing any financial services by US institutions or in US dollars. Apparently, they have jurisdiction to enforce that if a transaction uses US dollars. Unfortunately for any country who provokes the ire US, currently USD is the only real option for international trade. Thus, even if Iran sells its oil, it cannot get access to the funds it generates. Some European countries tried to create an alternative for the global financial transaction system specifically for Iran to be able to sidestep the sanctions. It would have had serious limitation, e.g. allowing Iran to only purchase food and medicine. But even that has not been successful. Only a single transaction has been done using the new system so far. https://www.gov.uk/government/news/instex-successfully-concludes-first-transaction https://www.gov.uk/government/news/instex-successfully-concl...
  - cturner 6y ago
    "currently USD is the only real option for international trade" I think you have conflated currency matters with sanction matters. I will attack that here, but much of your point stands. My points here: international business tends to be done in USD only because it is convenient, and no business ever failed to happen due to that convention. International trade tends to happen in terms of the USD because USD is convenient. Factors: (1) The world's largest economy does its business in USD; (2) There are many large lenders in the US and (3) There is a free and liquid FX market for USD. Many companies reduce their friction by working in USD. They borrow some money in USD and then spend some money in USD, and thereby avoid paying a fee to their bank's FX desk. Instead of managing a complex risk situation between their home currency and a dozen others, they concentrate it into a simple risk situation of their home currency vs USD. Iran could put oil in ships, and send it to China. China could put gold in ships and send it to Iran. Or - far more easily - Iran could price its transaction in terms of New Zealand dollars, and the two parties could make adjustments to a ledger in a tax haven. The USD conventions is akin to the role of English as lingua franca. It's convenient., or China The other part of your point is that US sanctions are harsh and far-reaching. No arguments against that here. Would I trust billions of dollars to a tax haven bank, or in countries with a strong rule-of-law tradition? Also, any time you want to spend substantial money in the developed world, the other party is going to need evidence that it is not sanction affected.
    - smnrchrds 6y ago
      I think the issue with USD is more entrenched than the role of English language. As I said, I'm no expert. I've just read some articles like this: > The power of U.S. sanctions lies in the use of the U.S. dollar in most international transactions. A foreign company that sends its proceeds from trade with Iran through an international bank would likely face sanctions because part of it would be conducted in dollars. https://www.washingtonpost.com/world/national-security/iran-plans-to-use-other-currencies-to-get-around-us-sanctions/2018/09/29/230df8e4-d4a3-4429-94be-4dbb90ece08e_story.html https://www.washingtonpost.com/world/national-security/iran-...
alextheparrot 6y ago
Iran had a 69% decrease in oil exports (In terms of barrels exported) between 2018 and 2019, as a result of US sanctions [1]. I don't think refined vs unrefined is the biggest issue, given that a reduction in quantity would be hard to recover in terms of quality. [1] https://fred.stlouisfed.org/series/IRNNXGOCMBD https://fred.stlouisfed.org/series/IRNNXGOCMBD
- rckoepke 6y ago
  Indeed, a 70% drop in exports would be difficult to recoup. However, for sake of understanding: currently about 4-6% of global oil and gas is used to produce plastics. This represents about $600 Billion in total market value. The total global crude oil market is about $1,800 Billion if oil is $50/bbl. So it seems that you get roughly 5x higher revenue on a barrel of oil turned into plastic than sold in its unrefined state. Probably much more if oil is $20/bbl.
  - alextheparrot 6y ago
    Plastic is pretty far away from "Refined vs Unrefined", refining adds about $10-20 of value per barrel [1]. At Iran's volume, that is billions of dollars, but not a 5x in revenue. [1] https://www.canadianfuels.ca/website/media/PDF/Publications/Economics-fundamentals-of-Refining-December-2013-Final-English.pdf https://www.canadianfuels.ca/website/media/PDF/Publications/...
    - rckoepke 6y ago
      I was referring to my statement earlier in this thread: > And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand. "Refine" was used loosely, but the bulk of the plastics market are still relatively simple products that don't necessarily require extremely high technology to produce. It's still a cutthroat commodities business, but producing a little plastic has the potential to add a lot of dollars. You can see this happen in Saudi Arabia over the past decade. They worked with Dow Chemical to produce the "Sadara" plant - a very large refinery and chemical plant. Crude oil made up over 80% of Saudi's exports from 2010-2014. The first phase of Sadara began selling product in 2015, and the final major piece (of 26) was commissioned in 2017. When Sadara opened its first phase, crude oil dropped from ~80% of export dollars in 2014 to just 55% in 2015. So yeah, opening a chemical plant can massively change your export profile. Now, this data includes a huge drop in oil price after 2014 so it's not entirely fair. But is is reasonably fair vecause it wasn't just oil prices that dropped - chemicals+plastics dropped up to 50% as well. Their $ value in exports stayed constant despite the price drop, indicating a large surge in export volume. And this is largely driven by the construction of a single integrated refining facility.
sumedh 6y ago
Indian refineries used to import Iranian crude and then sell some of processed oil back to Iran but those refineries have significantly scaled back their imports because of US sanctions.

by bsanr2 6y ago

But is their ability to produce or sell refined vs unrefined oil effected by the sanctions? Maybe not directly; maybe in how they're able to access funding for infrastructure, for example?

rckoepke 6y ago

Partially. The USA offers some of the best technology for extracting and refining oil, but no US citizens or companies can offer their expertise to Iran. However, most oil companies are international and have headquarters in multiple countries - so quite a few large oilfield service companies can do business with Iran as long as they don't cheat the system to provide USA-based services. Schlumberger, a French/Texas/Dutch/UK company, earned themselves the largest international sanctions fine ever for skirting the rules. It wasn't illegal for them to work with Iran, even though they are headquartered in Houston, TX. However, they used US-based personnel and assets and now are barred from doing any business with Iran as part of the penalties. So Iran does find it difficult to get some of the latest technological advantages. That said, their geology doesn't demand super high tech solutions to extract oil. And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand. The details of the sanctions have changed a lot over the past 10 years. Between 2013 and 2016, sanctions were globally supported and it was extremely difficult for Iran to sell its oil. Now it's just a few countries embargoing Iran, so Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices.

smnrchrds 6y ago
> Iran seems to be able to sell nearly as much as it wants, presumably at near-market prices. Not really. I am no expert, but my understanding is that US sanctions bar Iran from accessing any financial services by US institutions or in US dollars. Apparently, they have jurisdiction to enforce that if a transaction uses US dollars. Unfortunately for any country who provokes the ire US, currently USD is the only real option for international trade. Thus, even if Iran sells its oil, it cannot get access to the funds it generates. Some European countries tried to create an alternative for the global financial transaction system specifically for Iran to be able to sidestep the sanctions. It would have had serious limitation, e.g. allowing Iran to only purchase food and medicine. But even that has not been successful. Only a single transaction has been done using the new system so far. https://www.gov.uk/government/news/instex-successfully-concludes-first-transaction https://www.gov.uk/government/news/instex-successfully-concl...
- cturner 6y ago
  "currently USD is the only real option for international trade" I think you have conflated currency matters with sanction matters. I will attack that here, but much of your point stands. My points here: international business tends to be done in USD only because it is convenient, and no business ever failed to happen due to that convention. International trade tends to happen in terms of the USD because USD is convenient. Factors: (1) The world's largest economy does its business in USD; (2) There are many large lenders in the US and (3) There is a free and liquid FX market for USD. Many companies reduce their friction by working in USD. They borrow some money in USD and then spend some money in USD, and thereby avoid paying a fee to their bank's FX desk. Instead of managing a complex risk situation between their home currency and a dozen others, they concentrate it into a simple risk situation of their home currency vs USD. Iran could put oil in ships, and send it to China. China could put gold in ships and send it to Iran. Or - far more easily - Iran could price its transaction in terms of New Zealand dollars, and the two parties could make adjustments to a ledger in a tax haven. The USD conventions is akin to the role of English as lingua franca. It's convenient., or China The other part of your point is that US sanctions are harsh and far-reaching. No arguments against that here. Would I trust billions of dollars to a tax haven bank, or in countries with a strong rule-of-law tradition? Also, any time you want to spend substantial money in the developed world, the other party is going to need evidence that it is not sanction affected.
  - smnrchrds 6y ago
    I think the issue with USD is more entrenched than the role of English language. As I said, I'm no expert. I've just read some articles like this: > The power of U.S. sanctions lies in the use of the U.S. dollar in most international transactions. A foreign company that sends its proceeds from trade with Iran through an international bank would likely face sanctions because part of it would be conducted in dollars. https://www.washingtonpost.com/world/national-security/iran-plans-to-use-other-currencies-to-get-around-us-sanctions/2018/09/29/230df8e4-d4a3-4429-94be-4dbb90ece08e_story.html https://www.washingtonpost.com/world/national-security/iran-...

alextheparrot 6y ago

Iran had a 69% decrease in oil exports (In terms of barrels exported) between 2018 and 2019, as a result of US sanctions [1]. I don't think refined vs unrefined is the biggest issue, given that a reduction in quantity would be hard to recover in terms of quality. [1] https://fred.stlouisfed.org/series/IRNNXGOCMBD https://fred.stlouisfed.org/series/IRNNXGOCMBD

rckoepke 6y ago
Indeed, a 70% drop in exports would be difficult to recoup. However, for sake of understanding: currently about 4-6% of global oil and gas is used to produce plastics. This represents about $600 Billion in total market value. The total global crude oil market is about $1,800 Billion if oil is $50/bbl. So it seems that you get roughly 5x higher revenue on a barrel of oil turned into plastic than sold in its unrefined state. Probably much more if oil is $20/bbl.
- alextheparrot 6y ago
  Plastic is pretty far away from "Refined vs Unrefined", refining adds about $10-20 of value per barrel [1]. At Iran's volume, that is billions of dollars, but not a 5x in revenue. [1] https://www.canadianfuels.ca/website/media/PDF/Publications/Economics-fundamentals-of-Refining-December-2013-Final-English.pdf https://www.canadianfuels.ca/website/media/PDF/Publications/...
  - rckoepke 6y ago
    I was referring to my statement earlier in this thread: > And they could be using 1960's technology to refine their oil into higher value products but they simply aren't, for reasons I don't understand. "Refine" was used loosely, but the bulk of the plastics market are still relatively simple products that don't necessarily require extremely high technology to produce. It's still a cutthroat commodities business, but producing a little plastic has the potential to add a lot of dollars. You can see this happen in Saudi Arabia over the past decade. They worked with Dow Chemical to produce the "Sadara" plant - a very large refinery and chemical plant. Crude oil made up over 80% of Saudi's exports from 2010-2014. The first phase of Sadara began selling product in 2015, and the final major piece (of 26) was commissioned in 2017. When Sadara opened its first phase, crude oil dropped from ~80% of export dollars in 2014 to just 55% in 2015. So yeah, opening a chemical plant can massively change your export profile. Now, this data includes a huge drop in oil price after 2014 so it's not entirely fair. But is is reasonably fair vecause it wasn't just oil prices that dropped - chemicals+plastics dropped up to 50% as well. Their $ value in exports stayed constant despite the price drop, indicating a large surge in export volume. And this is largely driven by the construction of a single integrated refining facility.

sumedh 6y ago

Indian refineries used to import Iranian crude and then sell some of processed oil back to Iran but those refineries have significantly scaled back their imports because of US sanctions.