Iranian Oil Exports and Sanctions:
A Case for more transparency from
the Obama Administration
Nathaniel Kern
Foreign Reports Inc.
May 1, 2014
Notes on data
•
•
•
•
Data in this report is current as of May 1, 2014. Individual countries importing Iranian oil report
their data between 15 and 45 days after the month in question has ended.
Sources: General Administration of Customs (China); KNOC (South Korea); METI (Japan); Reuters’
tanker discharge data (India); EPDK (Turkey); Bureau of Energy, Ministry of Economic Affairs
(Taiwan). Taiwan and Turkey won’t publish data until mid-May. Our assumption is that Taiwan
imported no oil from Iran in March and that Turkey’s imports were the same as the average during
the past six months. Data does not include unreported imports by Syria or the UAE or product
imports by China.
Unless otherwise noted, all data is in ‘000 of b/d. Chinese and Indian data is converted from tonnes
to barrels at 7.2 barrels per tonne.
Copies of this presentation are available at ForeignReports.com
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Officially Reported Imports of Iranian Oil Nov. 2011 to date
The Long Perspective: Imports averaged 1.074 million b/d from July
2012 through October 2013
2500
2000
Other
S. Africa
'000 b/d
1500
IEA Eur.
Turkey
1000
S. Korea
Japan
India
500
China
0
nov dec jan feb mar apr mayjune july aug sept oct nov dec jan feb mar apr may jun jul aug sept oct nov dec jan feb mar
2011
2012
2013
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2014
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The Post-November Perspective
"Big Six" Q1 2014 imports average 1.356 million b/d,
or 1/3 higher than six-month period before JPOA signing (1.018 million b/d)
1600
1400
1200
'000 b/d
1000
Taiwan
Turkey
800
South Korea
600
Japan
India
400
China
200
0
jan
feb
mar
apr
may
jun
jul
aug
sept
oct
2013
nov
dec
jan
feb
mar
2014
Foreign Reports
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The Post-November Issues
White House Fact sheet insisted that during the JPOA period, the six authorized
import jurisdictions would be held to their average levels of around 1 million b/d of
“oil” purchases prior to November 2013. In Q1, imports by these countries were 1/3
higher than average levels prior to the agreement.
•
•
•
•
If a “good” nuclear agreement is reached, it won’t matter if Iran was allowed to
export more.
If a “gray” agreement is reached, Administration will have a more difficult time
convincing Congress that it isn’t hiding something.
If no agreement is reached, it will be harder for Administration to come down “like
a ton of bricks” on Iran’s oil sales if core architecture of oil sanctions has already
been eroded.
Will Iran’s Supreme Leader conclude that Iran’s sitting at the negotiating table is
and will continue to be the best way to erode sanctions? Dilatory tactics have been
a staple of Iranian nuclear diplomacy for 11 years.
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Denials and Excuses
As the import data began to show that Iran’s sales were going up
sharply, the Obama Administration:
• Denied that the import data was accurate;
• Insisted that normal seasonal fluctuations were to blame; sharp
fluctuations are normal, but follow no seasonal pattern; and finally:
• Claimed that “technically” condensate, a type of crude oil, doesn’t
count as crude oil. This claim may have been based on memo from
State’s Legal Adviser.
• The net result: The U.S. has okayed a significant increase in Iranian
oil sales while insisting it hasn’t done so. End-May reports on April
imports could show some downward fluctuations in import levels,
but it’s best to wait for the final tallies. Early reports have proven to
be misleading. Ditto for end-June reports.
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Actual Total Volumes Officially Reported
(including condensates)
"Big Six" Q1 2014 imports average 1.356 million b/d. May-October 2013 average was 1.018 million b/d.
1,471
1700
1,246
1,142
1,118
1,007
894
jun
jul
762
810
900
898
1100
1,361
1,269
1,283
1,281
1,089
'000 b/d
1300
1,238
1500
700
500
jan
feb
mar
apr
may
aug
sept
2013
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oct
nov
dec
jan
feb
mar
2014
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Condensates Don’t Count?
• State first said publicly on April 11 that condensates
don’t count. Did the Legal Adviser make this
determination? When and why? Was “L” being
sensitive to policy objectives?
• State counted condensates before—otherwise
average imports prior to November would be closer
to 800,000 b/d than 1 million b/d.
• Only Japan’s METI reports crude imports by grade—
and includes S Pars C as crude.
(For a number of reasons, UAE condensate imports of
about 100-120,000 b/d have never been counted.)
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What are condensates?
Condensates are byproducts of crude oil production
(lease condensates) and of natural gas processing
(plant condensates). They are gaseous at elevated
temperatures, liquids at normal temperatures. U.S.
producers can’t export them because they are
considered a kind of crude oil. They can be used to
supplement a crude oil stream, or sold as separate
products. They are mostly pentanes and heavier
hydrocarbons. They sell at rough parity to crude oil
and are processed at splitters, refineries and in
petrochemical plants.
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Condensates and LPG matter
Increase in condensate exports even sharper in Nov.-March period
Iran's "Non-Oil" Exports H1 and H2 of Iranian year ending on 3-20-2014
9
8
7
Value in $ billions
6
5
LPG
4
Condensate
3
2
1
0
Mar-Sep
Sep-Mar
Iran Customs Administration April 2014 Report
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Is Condensate Crude Oil under the
NDAA?
• The U.S. statute which imposed the core oil
sanctions—the National Defense Authorization Act
(2012)—requires that countries which import
petroleum or petroleum products from Iran be
sanctioned. NDAA 2012, Section 1245 (c)
• But it provides for the granting of 180-day exceptions
for countries which significantly reduce their purchases
of Iranian crude oil. NDAA 2012, Section 1245 (d)
• What, in practice, does this anomaly in the legislative
language mean? Could this anomaly be the legal basis
for saying that condensates don’t count?
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Reducing crude, increasing
condensate?
• Did Congress mean that Country X could make
significant reductions in its purchases of crude oil
while simultaneously increasing its purchases of
condensate and thus qualify for an exception?
• Condensate is often blended into a crude oil
stream to fetch a higher price, but it can just as
well be sold separately.
• Iran has said that it has increased its sales of
condensate (as a separate product) by 300,000
b/d since November.
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Waivers and Exceptions
• Exceptions to the NDAA were first granted to EU countries and
Japan in March 2012.
• State Department granted exceptions to China, India, South Korea,
Taiwan and Turkey in June 2012, and every 180 days thereafter.
• State exercised discretion allowed by NDAA in granting these
exceptions. State decided what constituted “significant reduction”
and gave effective latitude to a number of jurisdictions.
• National Security waivers were granted to Japan, China, India, South
Korea, Taiwan and Turkey on January 20, 2014 for a period of 120
days.
• The waivers “obviated” the need for more exceptions.
• The current waivers expire on May 20.
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Value of additional sanctions relief
The total estimated value of the relief is between $6
and $7 billion during JPOA period according to White
House Jan. 16 Summary:
• $4.2 billion by unfreezing assets in installments.
• Balance is estimate of auto parts, petrochemical,
etc. relief.
But 300,000 b/d of additional exports x 180
days x $100 = $5.4 billion. Did a memo from the
Legal Adviser give an extra $5.4 billion during
the JPOA period?
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What’s $5.4 billion mean for Iran and
for Ali Khamenei?
• The Rouhani government aims to save $5.5
billion per year by cutting cash subsidies to
better-off Iranians and increasing prices of
subsidized goods.
• $5.4 billion is value of 300,000 b/d additional oil
sales over six month period.
• Might this encourage Supreme Leader to believe
that sitting at the negotiating table is and will be
the best way to erode sanctions?
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What’s in it for Iran if it sells more oil and/or condensate, but the
money is still frozen in foreign banks?
No one can say for sure that all additional revenues will
be frozen*, but if so:
1. The oil is still monetized—better frozen assets than no
assets, and probably better than oil left in the ground.
2. Frozen funds can be freely used to buy products from
oil-importing countries.
3. Increased volumes give Iran a jump-start now on
securing more market share.
4. Iran also gets a jump-start in raising production.
*If condensate doesn’t count as crude, are revenues from its sale frozen?
How about revenues from export of pistachios?
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Possible motivation for permitting
higher oil sales?
• Create goodwill with Rouhani government and
nuclear negotiating team. Iran in turn may
give a little more than promised on the
nuclear side.
• Nuclear Agreement with Iran would be Obama
Administration’s most important foreign policy
triumph—if it is a sound one, without secret
concessions to Iran.
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Will Administration Need Congressional
approval for nuclear deal?
CHAIRMAN MENENDEZ: “Does the Administration intend to come back to the
Congress, if you have a final deal, for ultimately lifting some of the elements
that would be needed to be lifted under law?”
SECRETARY KERRY: “Well, of course. We would be obligated to under the law,
Mr. Chairman. We would absolutely have to. And so clearly, what we do will
have to pass muster with Congress. We well understand that.”
{April 8 testimony before Senate Foreign Relations Committee}
Possible Ways to Bypass Congress
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Pure Executive Agreement with Iran would have to conform with Case Act plus rely on
existing 120-day national security waivers.
Short 120-day waivers would impose substantial burdens on Iran and never be
permanent.
Youngstown Sheet & Tube Co. v. Sawyer (1952) effectively limits president’s executive
authority if it clearly contravenes Congressional intent.
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Final Agreement—neither black nor white?
More transparency will be needed now.
• If there are gray areas in any final agreement, the
Administration will need credibility on key nuclear
issues in order “to pass muster with Congress.”
• A track record of obfuscating material facts about the
extent of sanctions relief could undermine
Administration’s credibility when it might need it most.
• Administration must renew waivers by May 20. It
would be a good time to be more transparent about
sanctions relief to date. If not, it could undermine
Congressional confidence that it won’t also try to
sweep material facts about the nuclear program under
the rug.
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