Sanctions affect Iran’s oil product export

My article for Azernews News Paper
http://www.azernews.az/oil_and_gas/47652.html

Iran's Economy Minister Shamseddin Hosseini confirmed that Iran's oil export revenues have halved.

In 2011 Iran exported about 2.2 million barrels per day (mbpd) of crude oil and 400,000 bpd of condensate, worth $114.7 billion, which made up 84 percent of the country's total exports.

After oil and condensate, petrochemicals and petroleum products are the major export goods in Iran. For instance, the country sold $3.5 billion worth of liquid petroleum gas (LPG) last year.

LPG comprises propane and butane. Last solar year, Iran exported $2.06 billion worth of propane, and $1.3 billion worth of butane, according to Iran's Customs Organization, but new figures show that Iran's total propane export during the first eight months of theIranian solar year (starts on March 20, 2012) is $900 million, and butane disappeared from Iran's first five non-oil export items list.

The main reason is the Western sanctions on Iran's oil and petrochemical export sector, as well as the lack of LPG carrying ships in Iran. According to an OPEC report, Iran has only one LPG carrier with 12,000 cubic meters capacity. EU companies that cover 95 percent of oil and petrochemical ships' insurance, have halted providing services for ships that transport Iranian oil or LPG.

The Iranian government announced earlier that it was building crude oil storage facilities because of obstacles posed to selling all of its produced oil. Iran's state TV broadcaster IRIB reported on Monday that two new condensate storage facilities with capacity of 640,000 cubic meters will be set up in the Persian Gulf, a decision that indicates a sharp drop in the country's condensate export.

According to the budget law for the current solar year, it is expected that Iran is to export 400,000 barrels per day of condensate worth $18 billion.

It is not clear what Iran would resort to in order to minimize the impact of the sanctions, given that the amount of the lost petroleum export revenues is above the volume of the country's total imports in 2011. Iran has lost an estimated $60 billion worth of revenues directly and indirectly (custom duties, etc.) from the sanctions on its petroleum export, while Iran's legal import in 2011 was $58 billion. Smuggling and illegal foreign trade in Iran is at $14 billion, according to official estimates, but some MPs put the figure at as high as $30 billion.

The shrinking of Iran's petrodollar incomes by 50 percent in a year's time is a huge challenge for Tehran, which experienced 26 percent inflation and 0.9 percent GDP contraction in 2012 according to the International Monetary Fund, which assessed the Iranian economic performance before the Western sanctions on the country's oil export and banking took effect.

Last week, the Institute of International Finance predicted that Iran's GDP contraction would be about 3.5 percent and the inflation rate would stand at 50 percent by the end of 2012.

Iran plans to compensate the lost petroleum revenues by managing and raising taxes, but for a country with 50 percent inflation rate and 3.5 percent reduction in GDP growth, with the current taxation incomes at only 7 percent of GDP, this effort seems to be doomed to failure.