Iran has started exporting oil to Europe and Asia as the price of US crude sinks, adding to a bonanza for the Islamic republic as it emerges from years of sanctions and international isolation.
After five years of crippling international sanctions that cut exports by half and hammered its economy, Iran is finally shipping more of its 2.7m barrels of crude daily to customers who need the oil, reports the Financial Times, citing an unnamed European trading source. The exports come as the price of US crude, the benchmark for many oil buyers, has plunged to less than $50 a barrel, the lowest price since 2003, after a 40% drop since June.
Iranian officials are aware that the country's economy could be hit hard by further sharp drops in the price of oil and rising US interest rates. The White House is considering extending its sanctions against Iran, including those targeting the central bank and oil exports, which could further cut off Tehran's ability to sell oil, although the news was not greeted warmly by Tehran.
"Europe is not the world's biggest importer of oil. So what? How much oil are they going to buy when they can buy cheap oil from Iran?"
The oil shipments come after a report earlier this week that the US had struck a preliminary deal with Tehran that could see sanctions lifted in exchange for a freeze of its nuclear program. White House spokeswoman Jen Psaki has denied that any agreement had been reached. The administration has denied that an announcement of a deal is imminent.
Iran has long argued that it has a right to develop nuclear energy for civilian purposes, a point which the US and its Western allies dispute.
Even while there has been some speculation that the warming of relations between Washington and Tehran may signal the end of oil sanctions, Russia's energy minister, Alexander Novak, stated this week that "we cannot take any choices that would put aside the interests of our firms."
Iran's sales to Europe and Asia have increased by around 30% since the summer. The FT says some of the shipments could be from Russian tankers. The five-year global oil glut has helped to push prices down, with benchmark Brent crude dropping from nearly $115 a barrel at the start of the year to under $50 this week.
The Wall Street Journal also said on Friday that Iran's oil sales to Europe and Asia may exceed half a million barrels a day, with cargoes headed to about 20 countries in Asia, Europe and Africa.
Meanwhile, news of renewed US-Iran talks has sparked jitters on markets that oil prices could go even lower. After saying that "the door is always open" to dialogue, Barack Obama met Iran's president, Hassan Rouhani, on Wednesday in New York.
According to Saxo Bank commodities expert Ole Hansen, "the oil market is obviously already concerned about the high levels of US crude oil production, coupled with expanding crude oil stocks, and that doubts are emerging regarding demand."
"Even without a sudden shortage of crude, rising oil prices should continue to erode fuel demand growth for the foreseeable future and we think it is only a matter of time before one of the biggest crude oil bears acknowledges his current bearish outlook and cuts short the trade."
Long-term, lower oil prices could also be an economic benefit. Bloomberg notes that both Russia and the US are looking for ways to shrink a significant trade gap, which stood at $430bn for Russia and $506bn for the US in the first half of the year. Lower oil prices could potentially ease some of that pressure, which would be good news for both Russia and the US.
The US is also likely to lose the biggest consumer of oil in Asia – China, which currently consumes around 15% of global oil. China is by far the largest importer of oil in the world, accounting for almost as much as the US and the EU combined. China's reliance on imported oil has been rising as domestic production has failed to keep pace with rising demand. According to HSBC, China will overtake the US as the world's largest importer of oil by 2019.
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