Zangeneh: We Have Found Ways to Overcome US Oil Sanctions

Iran's Oil Minister says that the Islamic Republic has found 'many ways' to overcome US oil sanctions. In an exclusive interview with Bloomberg on the sidelines of the OPEC meeting held in Vienna on Friday, July 1, he stated that he would not disclose the details of these methods as he does not want the US to uncover Iran's plans and neutralize them. Zangeneh continued that Iran has found ways to overcome the oil sanctions and is working to prevent a decline in oil production and exports. In response to a question about the current purchase of Iranian oil, he said that most of the Islamic Republic's customers continue to buy oil, but some have stopped. He mentioned the French company Total and the Dutch-British company Royal Dutch Shell as having ceased their purchases of Iranian oil. According to him, some customers are facing difficulties in transferring money, transit, and insuring Iranian oil due to US sanctions. Regarding Iran's consultations with oil customers to encourage them to obtain exemptions from US sanctions, Zangeneh said he does not believe the United States will grant anyone an oil exemption and that Iran is focusing on other methods. Under US sanctions, Iran's customers must significantly reduce their imports of Iranian oil every six months to be exempt from US sanctions. Despite this, reports emerged on Friday regarding the US request to Japan to completely halt its imports of Iranian oil. Zangeneh stated that Iran's oil exports were 2.8 million barrels in May and around 2.5 million barrels this month. The figure he mentioned includes both crude oil and gas condensate exports. The US has only imposed sanctions on Iran's crude oil exports, and according to OPEC reports, Iran exported an average of 2.125 million barrels of crude oil daily last year. Iran had planned to maintain the same level of crude oil exports for this year. He attributed the spike in Iranian exports in May to 'selling oil in the oil exchange.' He did not clarify whether he meant the Iranian energy exchange or foreign exchanges like the Chinese stock market, which launched its oil exchange for the first time in recent months. One of Iran's new oil customers is Russia. Zangeneh mentioned that under the contract, oil is delivered to Russia, and the payment is received in full, but half of this money is used to purchase Russian goods and imports to Iran. The Iranian oil minister also commented on the agreement reached on Friday among OPEC oil ministers to increase production, stating that 'nothing new has happened.' In the final statement of OPEC, it was announced that the commitment of OPEC members and allied countries led by Russia to the 2016 oil production cut agreement must reach 100%. International statistics indicate that the compliance rate of the 24 countries committed to this agreement has been over 50% higher than what was agreed upon in recent months. This is due to the significant drop in oil production from Venezuela, Angola, and Libya within OPEC and the decline in production from Mexico among non-OPEC countries committed to production cuts. Thus, in practice, the 24 countries in the oil production cut agreement have reduced their production by 2.8 million barrels instead of the agreed 1.8 million barrels daily. In other words, these countries could increase their production by one million barrels daily, but the ambiguous OPEC statement has opened the door for various interpretations. Zangeneh stated that some OPEC members have reduced production more than their commitment, and only they can increase their production, meaning other OPEC members cannot compensate for the production decline in Venezuela, for example. For instance, Venezuela has lost 45% of its production in the one and a half years since the implementation of the production cut agreement, producing less than 1.4 million barrels last month, while it had only committed to a 4% reduction. He did not explain why a new agreement was necessary if other countries cannot produce beyond their quota and compensate for the production cuts of other members. Meanwhile, the Shana news agency, affiliated with the Ministry of Oil, also reported Zangeneh's statement that 'no member can seize Venezuela's quota. If Venezuela can, it will produce more, but if it cannot, no one can replace it.' The oil ministers of Saudi Arabia and Iraq also stated that in practice, OPEC and its allies could increase oil production by 600,000 to 700,000 barrels daily, which adds to the ambiguity of the new agreement. According to international statistics from OPEC and the International Energy Agency, among non-OPEC members, only Mexico has reduced its production by about 130,000 barrels more than its commitment, while the compliance of other non-OPEC allies like Russia has been less than their commitment, which has compensated for much of it. In practice, the decline in oil production in this group is due to the drop in production from some OPEC members who do not have the capacity to increase production. However, the compliance rate of Saudi Arabia, the UAE, and Kuwait to the mentioned agreement has also been higher than their commitment in recent months, but it is still much less than the 600,000 to 700,000 barrels mentioned. Due to this ambiguity, the Brent crude oil price did not only not drop after the OPEC agreement on Friday but also surged by 3% to above $75. The US crude oil price also increased by nearly 5% to close to $69.