New Opportunities versus US Oil Sanctions
As long as Iranian oil is offered at a discount, it will always have buyers, especially in the markets of traditional
Dr. Mehdi Asali, a senior expert in energy economics and former Iranian
envoy to international energy forums and OPEC, answers five questions in
which he takes a critical look at mechanisms to tackle the new rounds of oil
sanctions against Iran. Asali believes that launching a number of joint
companies and banks with Iranís trade partners and bringing them under one
network would probably be an effective step that must have been taken long
The United States has imposed new sanctions against Iran. What are the
solutions to reduce the impact of the oil sanctions?
In my opinion, one solution (the strategies for which can be gradually
improved) is that we negotiate with the main purchasers of our oil, namely
China, India, South Korea, Japan, Turkey, Italy, Spain, etc. to launch a
number of joint companies and private banks. This can be backed up by the
joint chambers of commerce.
For example, Iran-China Alpha (Energy) Company, Iran-India Beta (Energy),
and others can share ownership 50-50 or other figures depending on the rules
of the trade partner country (for example, 90% Iran, 10% India, etc.) But
the business of these companies could be trading oil and energy, goods and
services between Iran and other countries such as China and India, and so
on. Because such a company is basically focused on trade between the two
countries and does not have commercial relations with the US, it cannot be
affected by the US sanctions. They can import Iranian crude oil, gas and gas
condensate from Iran and export goods required by Iran.
On the other hand, since the US sanctions are not endorsed by the United
Nations, the governments of China, India, and so on. would not oppose the
operation of these companies because it would create jobs for them and
companies would pay taxes to governments. Now, these companies can buy crude
oil from Tehran Energy Bourse and store them in oil depots in target
countries. This work is welcomed by the oil-importing countries because they
provide energy security without paying any costs.
On the other hand, these companies can buy part of the shares of the
refineries belonging to their trade partners and refine the crude oil they
buy from Iran in these refineries and sell them to retailers who have no
deals with the US, or even invest in some of their retail outlets.
In China, there are small refineries known as Tinpot refinery. These
joint-stock companies can buy the stocks of a number of these small
refineries. In addition to small refineries, they can gradually buy or
create a chain of petrol stations that can operate in major cities in China
or India, and so on.
To make these companies competitive, the National Iranian Oil Company (NIOC)
can supply crude oil to these companies at a discounted rate, and they can
rebate the discount plus tax after they reach the stage of profitability.
Are Iranian officials right in predicting that Iranís oil exports will not
fall to zero?
long as Iranian
oil is offered
at a discount,
it will always
especially in the
markets of traditional
Iranian importers. The rest depends on the readiness, intelligence and
effective measures of the private sector and the negotiations of the Foreign
Ministry and the joint chambers of commerce with their counterparts in an
attempt to eliminate the risk of secondary US sanctions against oil
importers from Iran by creating joint companies. I really do not see why
this does not work. Because these sanctions are not approved by the UN and
we should only try to eliminate the risk of secondary sanctions against the
importing companies. The solution to this problem too is the creation of
bilateral or multilateral joint ventures that are solely focused on trade
between Iran and these countries and would not have any transactions with
As a result, they would stay immune from the effects of the sanctions and
Iranís oil exports too would continue. The remaining issue is the transfer
to Iran of foreign exchange from the oil sale, which can be solved through
the establishment of joint and multilateral financial institutions under the
supervision of central banks of Iran and the other country. Of course,
instead of the US dollar, these financial institutions should use the euro
and other strong currencies such as the Chinese yuan, the Swiss franc, the
British pound and the Japanese yen. I think with these credible currencies
in the current situation we will be able to import almost every commodity
and service. The world outside Iran is not confined to the US alone; the US
economy, according to the latest IMF report, is only about 15.3 percent of
the global economy. Although the US dollar is the reserve currency (about 60
percent) and the worldís major trading currency, but this can also change in
the future with the advent of currencies such as the euro and the yuan.
Iran intends to turn the stock exchange into a pricing body in the region.
How much is this goal achievable?
In order to be able to create a distinctive oil bourse, certain conditions
must be provided that are not currently available in the country. That is
conditions that exist for example in the London Stock Exchanges (AIS for
Brent) and New York (NIMEX for WTI), which are not comparable to ours.
The commodity markets are shaping up where several important factors have
been provided. Firstly, the rules and regulations of the country are fully
compatible with international laws and regulations; a country that is still
not a member of the WTO and whose financial markets are still not among the
signatories of the anti-money laundering and anti-terrorism regulations, its
currency market is very fluctuating and due to the threats of the big powers
regarding escalation of the sanctions, there is not trust and no one would
make investment or do business.
Furthermore, the commodity market requires high liquidity and a significant
number of reputable suppliers. Since the production and supply of Iranian
crude oil is the sole monopoly of a company, the (NIOC), which is a
state-owned company that has been deciding and acting not by commercial
considerations but by political orders (through the Ministry of Petroleum,
etc.), buyers are reluctant to have their contracts with this company,
although contracts have also been signed by the NIOC chief. Decisions are
made at levels higher than the CEO of the company and are just communicated
Also, the commodities supplied on the stock exchange must be fully
standardized so that the characteristics of different shipments are fully
identifiable and priced based on market information and other factors.
None of these conditions exists in the country at present; the most
important conditions for the inadequate development of international stock
markets in Iran are the high risk of the country and the incompatibility of
Iranís trade, financial and economic regulations with the world.
If you look at
the World Stock List, you can see that the Tehran Stock Exchange (TSE) is
still not on the main list of stock exchanges (while Turkey and Malaysia,
the UAE and Saudi Arabia, etc.) are listed on the stock exchange. And these
issues make it harder for Iran to become a bidder in the region.