Report

Crude Reality

Crude Reality

Iran is exporting more oil than it did last year, and in greater amounts than the limit the United States placed on exports under the on-going negotiations over Iran’s nuclear program, according to the latest oil market data.

But conflicting and complicated data about oil sales make it hard to present black-and-white arguments about whether the limited relief given to Iran as part of the nuclear negotiations agreed last November is providing a lifeline to Tehran or not. Iran hawks point to rising oil exports to argue that the United States is giving away negotiating leverage; the Obama administration says it is comfortable with Iran’s current exports and is focused on the six-month talks.

The latest data come just ahead of the next round of high-level talks between Iran and six major powers, slated for next week in Vienna. Friday’s monthly oil market report by the International Energy Agency shows Iranian oil exports reaching a one-year peak of about 1.4 million barrels a day in February, up from 1.1 million barrels a day in 2013. The Obama administration said it aims to limit Iranian oil exports to about 1 million barrels a day under the limited sanctions relief agreed to as part of the nuclear negotiations.

The problem is that monthly oil-market data fluctuate sharply and are constantly revised, making it difficult to draw firm conclusions about the strength of Iran’s oil sector or U.S. efforts to rein it in. Critics who fear that sanctions relief is easing the economic stranglehold on Tehran point to oil sales as a worrisome indicator.

"The increase in Iranian oil exports is further evidence that countries may now be more willing to test the will of the Obama administration in enforcing oil sanctions," said Mark Dubowitz, executive director of Foundation for Defense of Democracies, a group that has spearheaded efforts in Washington to tighten economic pressure on Iran. A Senate bill that would ratchet up sanctions against Iran has not yet come to the floor and isn’t likely to, given a near-certain White House veto.

"State and Treasury officials have their work cut out for them between now and July to prevent Tehran from driving an oil tanker through the sanctions regime," Dubowitz added. Since November, U.S. officials say they have been doing precisely that, meeting with the small number of countries that are entitled to import Iranian oil and pressing them to keep their imports in the first half of this year at 2013 levels.

While oil export data varies month-to-month, there are signs that the administration’s diplomatic offensive is paying dividends. India, for example, bought a lot more Iranian oil in January than it was buying the year before: about 415,000 barrels a day, according to the latest IEA estimate.

U.S. officials went to New Delhi to impress upon the government that it needed to cut back to last year’s import levels. Reuters reported last week that the Indian government said it would reduce its  purchases through the first half of the year. And according to the latest IEA report, India cut back sharply on Iranian oil imports in February, to about 175,000 barrels a day, below the amount it imported in late 2013, or around 200,000 barrels a day.

But India also illustrates part of the problem with the IEA’s monthly market report. Initially, the IEA estimated that India had imported only about 240,000 barrels per day in January, not far above its 2013 average. But U.S. officials, who track a range of oil market data and customs information from importing countries, were already looking at Indian purchases with growing alarm. In the end, the IEA revised upward its estimate of India’s January purchases from Iran to 415,000 barrels a day.

China is another big importer of Iranian oil that presents a challenge for market watchers and U.S. officials. The IEA on Friday revised downward its initial January estimate of Chinese imports of Iranian oil. And in the latest release, the IEA said China had further cut Iranian purchases in February from about 565,000 barrels a day to 385,000 barrels a day.

But the IEA also said that the total picture of Chinese imports is muddy because there are several oil tankers off the coast that haven’t unloaded, plus notable volumes of oil that could be entering the Chinese market via Indonesia. "As a result, Chinese imports are likely to be revised upward next month on final data," the IEA said.

U.S. officials say they have had constructive conversations with Chinese officials regarding Iranian oil purchases, and stress that China is a partner in the joint plan of agreement reached last November. That means that, unlike the past two years, when Beijing railed against what it called "unilateral" U.S. sanctions on Iran, China is part of the current agreement to cap Iran’s oil trade, officials said.

Finally, the question of just how much "oil" Iran is exporting depends on what is meant by "oil." Crude oil, the heavier liquid pumped out of reservoirs, is specifically targeted by U.S. sanctions. Condensates, which are lighter liquid hydrocarbons usually derived from natural gas, aren’t.

But the IEA oil figures lump together crude oil and condensates, which make Iran’s export totals seem higher than the cap the U.S. wants to impose. "Higher Iranian imports in recent months reflect, in large part, increased sales of condensates to Asian buyers," the IEA said.

U.S. officials, for their part, focus on the crude oil totals, the subject of sanctions, and believe their patient diplomacy is paying off.

"For now, we are comfortable with where things are," said a senior administration official.