Iran sanctions having an effect

OilPrice.com/Arab News:

ALTHOUGH the Iranian government insists that countries like China and Russia can make up lost Western investment in the petroleum sector, rising gas prices and stalled energy projects are signs that the regime is beginning to buckle under international sanctions.

The United States, Canada and Australia, as well as the United Nations and the European Union, have stiffened financial penalties over the last several weeks against Iran for its nuclear program, which Tehran argues is meant for civilian uses like power generation and medical purposes. In recent weeks, Tehran has begun to feel “a lot of pressure” on the gasoline front, said Houchang Hassan-Yari, a professor of international relations at the Royal Military College of Canada in Kingston, Ontario. The government is now curbing from 100 liters to 60 liters the amount of subsidized gas consumers can buy each month, Hassan-Yari told OilPrice.com.

Iranian motorists must pay 100 tomans per liter of gas (less than 10 cents), “but if you purchase more than 60 liters, you have to pay 400 tomans per liter,” he noted. “And there is no clarity about the situation in the next two or three weeks to two months in terms of volume but also (in) the price.” The increase has already begun to affect many aspects of Iranian life, including moving agricultural products to market, he said, citing the rising price of beef.

International players have targeted Iran’s energy sector, the Islamic Revolutionary Guard Corps-Qods Force, and other areas of the economy. The oil and gas industry, the lifeline of Iran’s economy, has been particularly hit. The country holds the world’s third-largest proven oil reserves and the world’s second-largest natural gas reserves, according to the US Energy Information Administration. Iran, however, must still look overseas for refining capabilities.

As US sanctions against Iran’s oil and gas industry took hold, firms like Lukoil, Royal Dutch Shell, Total and Reliance stopped selling gas supplies to Iran. The government of Mahmoud Ahmadinejad, which needs Western technology to help modernize the energy sector, last March announced plans to seek a $200-billion investment in oil, gas and refinery industries over the next five years.

In another indication the energy sector is in trouble, the Revolutionary Guard has found it tough to drum up enough money to advance the so-called “peace pipeline,” which is meant to transport gas from southwest Iran to Pakistan and potentially India and Bangladesh, Hassan-Yari noted.

The South Pars gas field — “arguably the most important” of Iranian gas undertakings - has not attracted Western investors either, added Alex Vatanka, a scholar at the Middle East Institute in Washington. The government, however, has dismissed the impact of sanctions on its stalled South Pars activities and argued that it does not need foreign partners, Vatanka told OilPrice.com.

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There is more.

Iran is not willing to admit that the sanctions are effecting their normal operations, but they clearly are. I suspect the opening of a nuclear power plant was pushed to displace some of the demand for energy within the country.

The gasoline vulnerability has been the subject of several US commentaries and it appears that as limited as the sanctions are, they are having an effect.

The other main effect is on financing projects Iran needs to remain competitive. I think they are also hurt by the decline in the price of oil more than most other producing countries.