Reuters reported that a new round of US and European sanctions targets Iran''s dilapidated oil sector from top to bottom, making it even more difficult to maintain output capacity and domestic supplies of fuel.
Experts said that the US, seeking to halt Tehran''s nuclear enrichment activities, passed unilateral sanctions earlier this month that for the first time allow it to punish the US operations of international firms who supply fuel to Iran. Although the world''s fifth largest oil exporter, Iran lacks the refining capacity to meet domestic fuel demand and relies on imports to meet up to 40% of its gasoline needs.
The European Union''s new measures are its first attack on technical assistance and investment in an oil industry already sapped by years of international isolation.
Mr Mehdi Varzi of independent oil and gas consultancy Varzi Energy said that companies with operations in the United States have to be very careful indeed. The sanctions can be interpreted in any way Congress likes, so anything, even a trade of just a few million dollars, could be seen as abetting the other party.
While the US has yet to clarify how to interpret its rules, some firms have chosen to implement them strictly, denying Iranian aircraft the right to refuel in international airspace and forcing Iran to rely more on traditional allies for shipments of gasoline.
Washington has said only that the measures apply to firms supplying Iran with cargoes worth more than USD 1 million or with fuel that has an aggregate fair market value of USD 5 million over 12 month period. That is much less than the approximate market value of around USD 25 million for just one 35,000 tonne cargo of gasoline. Tehran is importing nine cargoes of that size in July.
Many international oil firms and trading companies had already stopped supplying gasoline to Iran in anticipation of the sanctions. France''s Total did so soon after the US Congress passed them.
According to oil traders, the smaller pool of sellers has driven up the cost of imports to Iran by as much as USD 10 per tonne. With imports of around 315,000 tonnes in July, that would add around USD 3 million to Iran''s monthly import bill. Further strain on Iran''s finances would add to the progressive impact of sustained sanctions that have made international oil firms leave once projects have been completed.
Mr Varzi said that nobody argues about the size of Iran''s reserves. But you have to put a dollar in to get a dollar out. The upstream direly needs investment and isn''t getting it. Iran''s upstream and downstream oil sector is a mess.
State run Asian energy firms have taken on more projects as western firms have left, but analysts say they often lack the experience and technology needed by Iran''s oil industry. This has left Iran struggling to arrest a production decline rate of around 8% to 10% at its mature fields, analysts said, let alone increase output.
Mr Bill Farren Price of consultancy Petroleum Policy Intelligence said that it''s not so much because of sanctions but because of weak management of the sector. Unqualified companies are being awarded contracts they are not capable of properly implementing. There is an increasing politicization of the oil ministry, the National Iranian Oil Company and the contractors.
Mr Sadad Al Husseini an ex senior official at Saudi state oil firm Aramco said that I think the sanctions have in fact been token sanctions. I think the global consumers realize that Iran is a very important player in the energy industry and they are not going to do anything that damages the industry without having repercussions on their own economies.
He said that for the longer term, there will be enough countries that are concerned about Iran''s output, naming China and India as examples. It''s never easy to make an embargo hold across the world.