The Struggle over Sanctions on Iranian Oil and Gas

In the latest round of conflict over Iran's nuclear program, the US and other major powers are considering targeted sanctions against Iran’s oil and gas sector. Unless they are applied effectively on a multilateral basis, they may in fact leave the US and its allies with even less influence over the Iranian regime. In recent months, President Obama and the US Congress have both called for resolutions targeting Iranian imports of gasoline, citing the country as a threat to national security. On the international stage, the US and Europe are pressing for new sanctions against Iran that may include trade in petroleum and gas; however, key nations like Russia and China are not yet fully on board with such a plan of action. Without international consensus, the end result may be narrow sanctions that fail to cripple the regime's ability to produce and sell oil and gas, or receive imports of gasoline, even ending up unintentionally benefitting the government of Iran in addition to the companies formerly doing business there.

With degraded internal capacity, Iran increasingly dependent on oil and gas imports

Iran is more vulnerable to strong, multilateral sanctions than at any time in recent decades. Due to a lack of local refining capacity and limited investment in the sector thanks to existing sanctions, Iran has become increasingly dependent on imported gasoline, which now provides over 30 percent of its total supply. Last year, Iran imported about 130,000 bbl/d of refined gasoline, which made up the bulk of its total oil imports. Iran’s refining and production capabilities have been unable to keep up with demand in the last decade. As of 2009, Iran had a refining capacity of 1.5 million bbl/d from its nine refineries, but that has been mostly stagnant since about 1998. Oil consumption, as of 2008, was 1.7 million bbl/d, and has been outpacing refining capacity since 2004. The Iranian government has announced plans to increase refining capacity to 3 million bbl/d by 2013 and add 180,000 bbl/d in new production capacity from recently discovered oil deposits by the end of 2015.

With limited domestic refining capacity, sanctions limiting imports would hit hard. But they will do so only if China participates in a meaningful way. China has shown a willingness to provide whatever Iran needs in exchange for access to its underdeveloped oil and natural gas reserves; the Chinese currently supply Iran with up to a third of its gasoline imports through third parties. Beijing has a proven track record of providing cash and infrastructure assistance to countries that supply it with crude oil, and Chinese companies are especially eager to discuss new projects in Iran at a time when major international oil companies, under pressure from their home governments, are holding back.

Full article here.