Russia Emerges as Winner from Iranian Oil Sanctions

An early winner from the latest round of Iranian sanctions is emerging: Russia, the Wall Street Journal reported. The U.S. began enforcing a tough new slate of economic restrictions against Iran on Monday, including a threat to sanction buyers of Iranian crude – which has refineries in Europe and Asia—recent, big buyers of Iran oil—looking for alternative supplies.

Russian oil companies have stepped in, stealing customers from Iran. The two countries produce similar grades of crude, making a switch by refiners relatively easy, the Journal adds.

But Moscow is also offering Tehran a lifeline for its stranded crude. It says it plans to defy U.S. sanctions and purchase Iranian imports. It’s offering to pay only in the form of barter, and then process the crude for domestic use. That would free up its own oil for more-lucrative crude export markets.

“Russia is playing on all sides,” said Helima Croft, chief commodities strategist at Canadian broker RBC. Russia counts Iran as a key ally in its widened geopolitical role in post-civil war Syria. It has criticized the new round of U.S. sanctions and says it won’t be bound by them. In recent months, Moscow has repeatedly said it would purchase at least 100,000 barrels a day of Iranian oil, which would provide a welcome buyer for oil that might not find a customer otherwise.

Russia is offering to pay for the crude with Russian machinery and food, according to Russia’s Oil Ministry, and it’s also promising to invest in the Iranian oil sector as Western companies retreat.

The new, Washington-imposed sanctions take specific aim at Iranian oil exports, that country’s most important economic pillar. U.S. officials want to cork up all 2.2 million barrels a day of Iranian crude-export capacity, threatening buyers with sanctions. Many purchasers, because they use the U.S. banking system, are vulnerable to such sanctions and are already pulling back. Russia is less vulnerable to Washington’s retaliation, since it already is under U.S. sanctions and its economy and financial system are less tied to the U.S. than Western European countries.

Iranian exports had been down some 800,000 barrels a day from before the U.S. announced its new set of sanctions, and oil market watchers expect that to fall sharply now that sanctions are in place.

A combination of machine learning, big data and tens of millions of satellite images of the planet each day is bad news for carriers of Iranian crude oil trying to evade U.S. oil sanctions, the Journal noted.

But while it is promising to help Iran, Moscow is replacing Tehran on the global oil market – it has boosted its output by almost half a million barrels a day, compared with last year, recently hitting a 30-year production record.

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