“Is Iran Gulling Obama?

Is Iran Gulling Obama?

There’s little doubt that global agreements, spurred by Congressional action, the Obama Administration’s diplomacy, and growing fears of Iran’s nuclear ambitions, have cut deeply into Iran’s oil revenues.  The value of its sales on world markets has fallen by some 54 percent in the last two years, from $115 billion in 2011 to just $62 billion in 2013.

Just as clearly, those revenue losses are the “stick” that has pummeled Iran to the nuclear negotiating-table with America and its allies via the so-called Joint Plan of Action agreement, under which Iran has curtailed nuclear developments in return for a “carrot” of limited and temporary relief from certain sanctions.

However, The New York Times reported on July 13, 2014 that “Iran is finding a way around Western sanctions” via exports of an ultralight oil – called condensate – that circumvents barrels-per-day (BPD) limitations on Iranian petro-imports by China and other Asian nations.  The Times report, considering its source, will be political catnip for Republican critics of Obama’s diplomatic reliance on relaxed sanctions, raising anew such questions as “Can Iran be trusted?”  Not to mention illustrating Republican convictions that Mr. Obama is easily gulled on the world stage.

But the facts, including the BPD numbers-game as reported by The Times, are a bit more complicated.

To begin, just what are these condensates?  Even OPEC reportedly has a hard time saying; but basically, they are by-products of oil and gas drilling which – due to their partial processing – are different from the crude oil or natural gas products to which internationally agreed sanctions apply.  So, as The Times also concedes, Asian countries’ purchases of Iranian condensates – while they hardly honor the spirit of international initiatives – do not violate the letter of agreed sanctions.

That said, what role to condensates play in the BPD numbers game?  Well, under current US regulations and international agreements, only six buyer-nations – China, India, Japan, South Korea, Turkey and Taiwan – are still allowed to buy crude oil from Iran, with the American understanding that total exports from Iran will remain in the range of 1.0 to 1.1 million barrels of crude per day.  According to The Times, however, even the US Energy Department estimates that Iranian oil exports averaged 1.4 million BPD during the first five months of 2014.   But – and here’s the rub – The Times also conceded that its reported 1.4 million BPD includes some 0.5 million BPD of condensates that are excluded from the policies and agreements that seek to cap Iranian exports at 1.1 million BPD.

So, if Asian purchases of Iranian condensates are excluded from the calculation, Iranian sales to permitted purchasers are running at the lower end of the 1.0-1.1 million BPD-level that is allowable.  To be sure, Iran’s oil minister recently claimed that his country’s exports of crude are now running at 1.2 million BPD, excluding condensates; but Administration officials counter that Iran (like, ironically, the Administration’s Iran-hawk critics) routinely inflates its reports on export earnings because, for political reasons, it seeks to show that international sanctions aren’t really hurting Iran.

To be sure, Iran is doing everything it can to expand exports of condensates, recently announcing for example that it has brought on-line a new off-shore dispensing facility for condensates generated by its giant South Pars natural gas field.  To the extent Iran succeeds in this, Iran’s aggregate revenues will increase and the overall bite of sanctions will decrease.  But there are also clear indications that, to attract sales, Iran is selling its condensates to China and other countries at steep discounts; so numbers indicating increased flows of BPD almost surely do not reflect commensurate increases in revenues per annum.

Administration spokesman also note that, whatever Iran may do to expand petro-sales abroad, international sanctions on its central bank still restrict what Iran can do with offshore profits – limiting it to purchasing goods and services in the countries (China, Japan, etc.) where those profits are earned, and leaving Iran with substantial Asian account-balances because the value of what it wishes to buy is often less than the value of the petro-products it has sold.  And international bans on sales of nuclear-related items to Iran prevents it from using those funds to purchase goods and technologies that advance its nuclear ambitions.

But don’t expect the facts to matter much.  As The Nation recently noted, the condensate-BPD numbers-game continues to inform – or misinform – the debate on US negotiations with Iran.  In July of 2014, a hawkish Washington think-tank called the Foundation for Defense of Democracies (FDD) issued a report entitled “Sanctions Relief: What did Iran Get?”, in which it argued that Iran has gotten some $11 billion in direct relief – far more than the $7 billion benefit that the Obama administration projected.  Quite apart from the fact that FDD’s $11 billion number is barely half the $20 billion minimum benefit that it confidently predicted as recently as last November, this number also includes about $5 billion in profits that Iran has earned from – you guessed it – sales of condensates.

Without inclusion of FDD’s estimated $5 billion in condensate exports, its figure of $11 billion in sanctions relief quickly falls below the Obama administration’s initial estimate of $7 billion.

So, is Iran gulling Obama?  No.

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