Iran's First Oil Shipment Sold on the Stock Exchange; Hopes Under the Shadow of Sanctions?

Iran's Ministry of Oil has announced the sale of its first oil shipment on the energy exchange, stating that part of it has been sold. According to Shana news agency, affiliated with the Ministry of Oil, the offering of one million barrels of light crude oil on Iran's energy exchange, which began at 2 PM on Sunday, November 6, ended with the transaction of 280,000 barrels of crude oil with private companies. Iran claims it wants to utilize the private sector's capacity for oil exports under sanctions and will keep all information regarding buyers and oil customers on the exchange confidential. The transaction method requires the private company to pay 20% of the oil price before delivery, and the remaining 80% must be deposited into the National Iranian Oil Company's account 50 days after delivery, guaranteed by an acceptable bank. If the buyer fails to sell the shipments, they can return the shipment to the National Iranian Oil Company with a 5% penalty deducted from its value. Official reports indicate that 280,000 barrels of light oil were sold at a price of $74.85 on the exchange. Some Iranian media have reported offers from companies to buy oil at prices ranging from $61 to $69, which were unsuccessful. In the previous round of sanctions during Mahmoud Ahmadinejad's presidency, there were several attempts to sell oil on the energy exchange, but they yielded no results. Oil sold outside the exchange to intermediaries like Babak Zanjani or police companies also failed to result in payment to the National Iranian Oil Company. The official international section of the Ministry of Oil has proposed the price of light oil for European markets for November delivery at $5.20 below Brent oil prices, which are currently below $78. Thus, the expectation of profit from selling this oil shipment in non-Asian markets seems unlikely. These shipments can only be sold in Asian markets, with a profit margin of about $3 per barrel for the private sector. However, if the private sector cannot sell the oil, they must return the shipment to the National Iranian Oil Company with a 5% penalty (approximately $3.75). The possibility of selling the 280,000 barrel shipment in Asian markets also seems very unlikely, as the National Iranian Oil Company covers the transportation costs to Asian refineries, and given the purchase price of $74.85, it is improbable that the private sector can profit from international sales after covering insurance and transportation costs. Furthermore, Iran gives its oil customers 60 days to deposit payment, but the private sector only has 50 days to pay. This means these companies must sell the oil only in cash markets and possibly to intermediaries to meet the payment deadline. Therefore, selling these shipments to major refineries seems highly unlikely. The inability of the private sector to sell shipments to foreign customers does not pose a risk to the National Iranian Oil Company, as all Iranian crude oil refineries, with a capacity of over 1.7 million barrels per day, use light oil, and if not sold abroad, these shipments can easily be absorbed by domestic refineries. If these shipments were heavy or ultra-light oil (gas condensates), they would have no option but to be stored if not sold. On the other hand, Iran hopes that the private sector can sell small shipments to regional or Asian intermediaries and assist the National Iranian Oil Company in circumventing sanctions. However, these companies could be sanctioned by the U.S. if tracked, posing a high risk for Iran's private sector, especially as reports suggest that some bank-affiliated companies intend to buy oil on the energy exchange. Moreover, this is the first experience for Iranian private companies to sell oil abroad, and it is unclear whether cash markets, intermediaries, and small refineries will be interested in this clandestine transaction given the risk of sanctions. However, oil exports by the private sector could confuse international companies tracking Iranian tankers. Currently, tracking companies can provide relatively reliable statistics on the sales of the National Iranian Oil Company to refineries and customers, but with the entry of the private sector and the sale of small shipments, tracking vessels and assessing the amount of oil sold and identifying customers will become very difficult. Although many refineries in low-tech countries are designed for light oils, and the private sector may be able to deliver small shipments to them, it is genuinely difficult to envision that the announced purchase price today on the energy exchange will yield profits for Iran's private sector.