Oct 17 / Victor Arduin

Energy Weekly Report - 2023 10 16

  Back to main blog page
"In recent years, Iran's presence in the global oil markets has increased as a result of the easing of Western sanctions on the country, tactics to disguise the origin of the commodity, and higher Chinese demand for their discounted product."

Iran's Oil Exports Increase in 2023

  • Iran has been increasing its presence in the global oil market, primarily due to higher demand from China and strategies to camouflage the origin of the commodity.
  • The combination of high demand for oil and limitations in supply due to OPEC+ measures creates a favorable environment for Iranian oil.
  • Iran is generating more revenue from oil in 2023, thanks to increased exports and high prices. This is strengthening the country's budget, which is highly dependent on oil and gas exploration.

Introduction

Iran is one of the most significant producers and exporters of oil and natural gas in the Middle East. According to OPEC data, the country holds the second-largest natural gas reserves and the fifth-largest oil reserves in the world. Therefore, Iran is a major player in the global energy market.

However, sanctions imposed by the United States in 2018 and 2019 heavily restricted the country's crude oil and condensate exports.

Furthermore, the COVID-19 pandemic had a considerable impact on Iran's finances, resulting in a significant reduction in investments in oil and gas exploration infrastructure. The drop in energy commodity prices due to the pandemic also contributed to the reduction in the country's oil exports.

Nevertheless, in recent years, the country has managed to circumvent Western sanctions, resulting in a significant increase in its exports. Iran has employed various techniques to disguise the origin of the oil, such as ship-to-ship transfers at sea, transshipment through the United Arab Emirates, or labeling it as different types of fuels.

As of September 2023, Iranian exports are estimated to be close to 1.5 million barrels per day (bpd), according to the International Energy Agency (IEA) data. However, the numbers could be higher due to the difficulty in tracing the origin of Iranian oil.

Image 1: Iran's Oil Production (millions of barrels)

Source: Bloomberg

Tehran's oil revenue has increased over the past three years

In recent years, Iran's presence in the global oil markets has increased as a result of the easing of Western sanctions on the country, tactics to disguise the origin of the commodity, and higher Chinese demand for their discounted product.

Furthermore, Iran has been blending its crude oil according to API standards, which is appealing to destinations like China and other Asian countries, as its quality is suitable for the refineries in this region.

Although there are no official statistics for Iranian exports, there is a consensus among ship-tracking companies that Iran's exports are steadily increasing.

Image 2: Iran's Oil Exports (millions of barrels)

Source: Bloomberg

The production restrictions by the Organization of the Petroleum Exporting Countries (OPEC+) have also contributed to the increase in Iran's oil exports. OPEC+ reduced oil production to support prices, creating a tighter market and opening opportunities for Iran to find new destinations.

More exports mean more capital for a country dependent on oil revenue. The budget approved this year projected a 58% increase in revenues, based on exports of 1.3 million bpd and assuming a price per barrel of $85.

What seemed quite unrealistic at the beginning of the year has become reasonable given the price escalation and the increase in exports.

Image 3: Crude Oil Prices vs. OPEC Production (millions of barrels)

Source: OPEC, Refinitiv

Conflict between Hamas and Israel may affect oil transportation in the Strait of Hormuz

The Strait of Hormuz is a vital waterway that connects the Persian Gulf to the Indian Ocean, serving as one of the key global routes for maritime transportation. This passage is crucial, facilitating the movement of about one-third of the world's exported crude oil.

In 2023, data from the International Energy Agency (IEA) indicates that approximately 22 million barrels of crude oil per day were transported through the Strait of Hormuz. The main oil exporters through this strait are Iran, Saudi Arabia, the United Arab Emirates, and Iraq.

Thus, the conflict between Israel and Hamas keeps the market on alert, as a potential involvement of Iran with local extremist groups could escalate the conflict, endangering the maritime passage of Hormuz - something the country has threatened in the past.

Image 4: Strait of Hormuz

Source: hEDGEpoint, EIA

In Summary

The Middle East is a strategic region for oil production, with countries like Saudi Arabia, Iran, and Iraq being among the world's major producers.

The escalation of the conflict in the region could lead to a disruption in oil trade, with Iran being at the highest risk. The country is already subject to Western sanctions that could be further intensified as the war progresses, making the Iranian oil trade even more challenging.

At this point, we are only at the beginning of the war, making it difficult to accurately anticipate the economic consequences that lie ahead. However, we are already experiencing a notable increase in volatility, especially reflected in the rise in oil prices. This scenario is likely to translate into increased inflation in the near future, given the subsequent rise in energy costs.

Weekly Report — Energy

Written by Victor Arduin
[email protected]
Reviewed by Pedro Schicchi
www.hedgepointglobal.com

Disclaimer

This document has been prepared by hEDGEpoint Global Markets LLC and its affiliates ("HPGM") exclusively for informational and instructional purposes, without the purpose of creating obligations or commitments with third parties, and is not intended to promote an offer, or solicitation of an offer, to sell or buy any securities or investment products. HPGM and its associates expressly disclaim any use of the information contained herein that may result in direct or indirect damage of any kind. If you have any questions that are not resolved in the first instance of contact with the client ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878-8408 (for clients in Brazil only).

To access this report, you need to be a subscriber.