There is some evidence that western sanctions on Iranian oil exports are taking a toll on the Islamic republic, even months before the sanctions go completely into effect in July. “Hobbled by sanctions against its banks and a growing international boycott of its petroleum, Iran is seeing its revenue sag while its oil sits in storage depots and floats in tankers with nowhere to go,” The Washington Post reports.
According to estimates by the Telegraph, approximately 19 of the National Iranian Tanker Company’s 34 oil tankers are lying idle off Iran, valued at about US$2.95 billion. “The fact that Iran is using valuable tankers for storage suggests that onshore holding facilities at Kharg Island, believed to have a capacity of 23 million barrels, must also be full,” according to the Telegraph. That holding facility could be storing an additional US$2.05 billion worth of idle oil. Moreover, Iran has become increasingly dependent on its own fleet of oil tankers since “One key impact of recent sanctions has been to choke off shippers’ access to maritime insurance, nearly all of which is underwritten in Europe,” according to The Washington Post.
In April, Iran began disabling satellite tracking systems aboard its oil tankers in a desperate move to sell oil to potential buyers in violation of western sanctions. “The move, a violation of maritime law, is only modestly effective in cloaking 1,000-foot-long tankers as they ply the oceans in search of open ports and willing buyers,” The Washington Post reports, “But it underscores Iran’s precarious position as it faces ever-tighter Western restrictions against its oil industry, which provides the bulk of export and government revenue.”
Western leaders are scheduled to meet with Iranian officials in Baghdad on May 23 to renew talks over Iran’s nuclear program. Experts believe that Iran’s decision to rejoin western countries at the negotiating table is evidence that recent sanctions have exacted a tough enough toll on the Islamic republic. Moreover, some leaders are promising tougher sanctions on Iran if Tehran fails to make concrete steps in the negotiations slated to begin next Wednesday. On Monday, British Foreign Secretary William Hague warned that if Iran fails to produce concrete steps and a proposal regarding its nuclear program then the European Union’s sanctions “will not only be enforced but, over time, intensified,” according to Hague.
The outcome of next week’s meeting between Iran and western countries could have an impact on global energy prices. According to the International Energy Agency’s May Oil Market Report, “some of the nervousness which drove prices to record highs in March has receded;” the report is referring largely to the prospect of confrontation between Iran and the West back in March. Yet despite market improvements, geopolitical risk, including around Iran, is likely to keep oil prices high for the foreseeable future. According to The New York Times, “Tension between Iran and the West is likely to keep oil prices high despite a significant improvement in world supply and a big buildup of oil stocks.” As a result, the May 23 meeting in Baghdad could sharpen or assuage geopolitical concerns, which may improve or worsen global oil prices.