Strategies behind the Iran sanctions — Arab News' weekly energy recap

Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel. (AFP)
Updated 03 November 2018
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Strategies behind the Iran sanctions — Arab News' weekly energy recap

RIYADH: Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel.
WTI also fell to $63.14 per barrel. The commitment of Saudi Arabia and Russia to offset any shortages after the imposition of sanctions on Iran have eased oil prices. Noticeably, Saudi Arabia increased its production to 10.7 million barrels per day (bpd) in October and is capable of increasing output further if needed. Russia produced at a post-Soviet-era peak of 11.36 million bpd in September. This news has comforted the market with the knowledge that any supply shortages from Iran will be effectively met.
Tomorrow, the US economic sanctions on Iran will come into force. These sanctions were supposed to take Iranian oil exports to zero amid the “highest level of economic sanctions” imposed. However, the US granted waivers to Iran’s top buyers, so that Iran will still be able to legally export at least one million bpd.
Even prior to the sanctions, Iran’s crude oil exports went down from 2.2 million bpd to 1.5 million bpd, as most of Iran’s customers have found other suppliers. Despite the US waivers, many nations will continue to look for other options to purchase the crude oil they need, as the US waivers could be withdrawn with little warning.
It is not clear yet if Iranian condensate will be included in this latest round of sanctions. It was not included during the 2012 sanctions because the Obama administration did not consider condensates to be crude oil. Much of Iranian condensate is from natural gas processing plants. There has been no Trump administration policy statement on whether Iranian condensates will be treated the same way as crude oil.
Any crude oil Iran can sell will be some relief for the country as it is running out of storage. Early last month, Iran was forced to move two million barrels of crude into a bonded storage tank at the port of Dalian in northeast China. It used a similar tactic during previous US sanctions. Such a ploy is necessary so that Iran can maintain enough storage for condensate from its natural gas fields. Otherwise, they would be forced to shutter natural gas production. That would cause severe unrest among its population since natural gas is used for about 70 percent of Iranian domestic energy consumption, including home heating.
China is the largest importer of Iranian crude. China used to be the largest importer of US shale oil until the outbreak of the US-China trade dispute. Now is the time for China to play its cards, inviting the US to de-escalate the trade dispute if China agrees to buy US crude in place of Iranian barrels. Considering that China’s trade surplus with the US has hit record highs, this could be a win-win situation. The only question is whether the US oil export infrastructure can keep up with the volumes needed. US oil exports have faced some challenges lately, dropping to 1.5 million bpd from a peak of two million bpd.
Another issue, which is also uncertain in regards to the US sanctions, is the small amount of trade of Iranian crude oil which is done through small banks outside the US financial system. Those banks helped Iran to export oil during 2012 sanctions. This is despite the fact that Iranian oil tankers will face huge challenges in securing insurance that is mandated by the refineries’ discharging ports.
Finally, it is unknown if the sanctions will include Iran’s “swap” arrangements with neighboring countries. Iran does oil-gas swaps with Caspian Sea nations. It also does oil swap deals with these countries, so that Tehran can supply northern areas with oil processed at the Tehran, Tabriz, and Arak refineries without having to transport it all the way from wells in the south. In another swap deal, Iraq sends oil from its northern Kirkuk fields to Iran by road, to be refined in Iran.
In return, Iran sends the same amount of crude to Iraq’s southern ports for exports. These swaps are considered an outlet for Iranian crude oil and US sanctions on them could cause considerable disruption.


Palestinians in financial crisis after Israel, US moves

Updated 22 March 2019
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Palestinians in financial crisis after Israel, US moves

  • A Ramallah-based economics professor said the Palestinian economy more generally, remain totally controlled by and reliant on Israel
  • Israeli-Palestinian peace efforts have been at a standstill since 2014

RAMALLAH, Palestinian Territories: The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.
The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.
The United States has cut more than $500 million in Palestinian aid in the last year, though only a fraction of that went directly to the PA.
The PA has decided to refuse what little US aid remains on offer for fear of civil suits under new legislation passed by Congress.
Israel has also announced it intends to deduct around $10 million a month in taxes it collects for the PA in a dispute over payments to the families of prisoners in Israeli jails.
In response, Abbas has refused to receive any funds at all, labelling the Israeli reductions theft.
That will leave his government with a monthly shortfall of around $190 million for the length of the crisis.
The money makes up more than 50 percent of the PA’s monthly revenues, with other funds coming from local taxes and foreign aid.

While the impact of the cuts is still being assessed, analysts fear it could affect the stability of the occupied West Bank.
“If the economic situation remains so difficult and the PA is unable to pay salaries and provide services, in addition to continuing (Israeli) settlement expansion it will lead to an explosion,” political analyst Jihad Harb said.
Abbas cut off relations with the US administration after President Donald Trump declared the disputed city of Jerusalem Israel’s capital in December 2017.
The right-wing Israeli government, strongly backed by the US, has since sought to squeeze Abbas.
After a deadly anti-Israeli attack last month, Prime Minister Benjamin Netanyahu said he would withhold $138 million (123 million euros) in Palestinian revenues over the course of a year.
Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
Israel said the amount it intended to withhold was equal to what is paid by the PA to the families of prisoners, or prisoners themselves, jailed for attacks on Israelis last year.
Many Palestinians view prisoners and those killed while carrying out attacks as heroes of the fight against Israeli occupation.
Israel says the payments encourage further violence.
Abbas recently accused Netanyahu’s government of causing a “crippling economic crisis in the Palestinian Authority.”
The PA also said in January it would refuse all further US government aid for fear of lawsuits under new US legislation targeting alleged support for “terrorism.”

Finance Minister Shukri Bishara announced earlier this month he had been forced to “adopt an emergency budget that includes restricted austerity measures.”
Government employees paid over 2,000 shekels ($555) will receive only half their salaries until further notice.
Prisoner payments would continue in full, Bishara added.
Nasser Abdel Karim, a Ramallah-based economics professor, told AFP the PA, and the Palestinian economy more generally, remain totally controlled by and reliant on Israel.
The PA undertook similar financial measures in 2012 when Israel withheld taxes over Palestinian efforts to gain international recognition at the United Nations.
Abdel Karim said such crises are “repeated and disappear according to the development of the relationship between the Palestinian Authority and Israel or the countries that support (the PA).”
Israel occupied the Gaza Strip and the West Bank, including now annexed east Jerusalem in the Six-Day War of 1967 and Abbas’s government has only limited autonomy in West Bank towns and cities.
“The problem is the lack of cash,” economic journalist Jafar Sadaqa told AFP.
He said that while the PA had faced financial crises before, “this time is different because it comes as a cumulative result of political decisions taken by the United States.”
Abbas appointed longtime ally Mohammad Shtayyeh as prime minister on March 10 to head a new government to oversee the crisis.
Abdel Karim believes the crisis could worsen after an Israeli general election next month “if a more right-wing Israeli government wins.”
Netanyahu’s outgoing government is already regarded as the most right-wing in Israel’s history but on April 9 parties even further to the right have a realistic chance of winning seats in parliament for the first time.
Israeli-Palestinian peace efforts have been at a standstill since 2014, when a drive for a deal by the administration of President Barack Obama collapsed in the face of persistent Israeli settlement expansion in the West Bank.