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Changes in production capacities and rates in the Gulf in preparation for sanctions on Iran

Saudi Arabia and the United Arab Emirates are preparing to increase their oil production to cope with the impact of long-term US sanctions on Iran, while Iraq is quietly and steadily increasing its output to compensate the three countries for a large share of Iran’s export market. Disturbances of other major producers.

US President Donald Trump’s eight-nation exemption to trade ties based on Iranian oil imports was a key tool for the US administration to keep prices low.

But the United States and its allies seem to be dealing with the new sanctions package as a reality for years to come. The sanctions will come into effect starting today, after Trump announced in May his country’s withdrawal from the nuclear deal signed with Iran in July 2015.

The attention is directed to Saudi Arabia as the only producer with significant spare production capacity estimated at 2 million barrels, which the kingdom may resort to to compensate for the shortfall resulting from US sanctions on Iran.

Saudi Energy Minister Khalid al-Falih said his country, which increased its daily production by 700,000 barrels to 10.7 million barrels in October, is ready to increase further to a production rate of 12 million barrels.

The Abu Dhabi National Oil Company (ADNOC) said in a statement on Sunday that it plans to increase oil production capacity to 4 million barrels per day by 2020 and to 5 million barrels per day by 2030.

The company explained that the Supreme Petroleum Council adopted ADNOC’s comprehensive gas strategy to achieve self-sufficiency and its plan for capital investments between 2019 and 2023.

“We held the meeting of the Supreme Petroleum Council and approved 486 billion dirhams ($ 132.33 billion) in investments to support ADNOC’s growth and expansion projects in the next five years,” Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan said in his Twitter account.

The UAE is a major OPEC producer, pumping around three million barrels per day of crude oil and plans to increase production capacity to 3.5 million bpd by the end of this year.

The policy of the two countries not only depends on increasing production based on strategic reserves, but also involves increasing production capacity by injecting new investments,

Construction of transmission lines, refineries and infrastructure development on which export operations depend.

Officials in the two countries are trying to predict the future, with market volatility caused by instability in Libya, Venezuela, Nigeria, Angola and Mexico, as well as a lack of clarity on the future of Iranian oil exports. “There are sanctions against Iran and no one knows what Iranian exports will be,” he said.

Iraq has also increased its production in a policy of trying to regain its historic share of the market, but this time at the expense of Iran, despite its strong influence on Baghdad.

“Everyone is talking about Saudi Arabia, but the country’s exports are stable around 10 million barrels a day,” said Samir Madani, an analyst at the Tanker Tracks, a specialist in tracking satellite tankers. “The real rise is Iraq, 4.2 million barrels

Today, an amount he has never seen before. ”

The United States relies on temporary exemption policies to hit two birds with one stone. On the one hand, the resolution will allow US allies to continue importing small amounts of Iranian oil, but at the same time their profits will not turn into cash that could enable the Iranian regime to move forward with policies to support armed militias in Yemen, Iraq, Syria and Lebanon.

“Letting these countries continue to buy small quantities of Iranian oil is fair in the eyes of the White House, because in the end it will not be of much benefit to Iran,” said Henri Rom, an Iran analyst at the Eurasia Research Group. Will remain a ceiling for prices. ”
” Iran’s oil will not be easily translated into cash that the Iranian regime can use in its regional policies. These funds will be transferred to bank accounts that will be opened in tax havens and spent on supplies of food, essential goods and some commercial activities,” he said.

This new dynamic in dealing with Iranian oil exports is close to the “oil-for-food” policy that was applied to Iraq during the 1990s under UN supervision. This means that the amounts Iran will receive from the export of oil outside the black market will be tightly controlled, especially the ways of its subsequent disbursement.

“These financial constraints will double the impact of Trump’s pressure, even if Iran continues to export oil to buyers around the world,” said Mark Dubovic, executive director of the Foundation for the Defense of Democracies. “In order to reach zero cash profits, it is not necessary to reach zero barrels of oil.”

Indeed, Iranian exports have fallen by 800,000 barrels from their fixed quota of 2.5 million bpd since the signing of the nuclear deal in 2015. The package of sanctions, which will come into effect today, could drop exports to between 1.2 and 1.3 million bpd, Especially as the European countries have adhered to it, and Chinese companies have continued to stop their orders from Iran.

This equation introduced Iran on the one hand and Saudi Arabia, the United Arab Emirates and their allies on the other, in an unaccounted oil game. Iranian officials are betting on market instability to overcome US sanctions, while Riyadh and Abu Dhabi are working to ensure stability. Source