U.S. Sanctions Have Crippled Iranian Oil Production

The U.S. sanctions on Iran’s oil sector are impacting the Islamic Republic’s ability to potentially increase production in the long term if the U.S.-Iran tensions subside and sanctions ease.

Iran relies 100 percent on imports for oil rig equipment, but the sanctions have stifled such imports from the U.S. and Europe, Mohsen Mihandoust, a director at Iran’s Society of Petroleum Engineers, told Reuters in an interview published on Tuesday.

Due to the sanctions, at least a quarter of the oil rigs, or 40 out of 160, in Iran are now out of work—either idle or under repairs, Reuters reported, citing financial documents and sources in the industry.

Iran’s oil rigs will be inefficient or very old within the next five years, according to Reuters’ sources.

With the U.S. sanctions in place, Iran doesn’t have many options to repair rigs in the short to medium term because it cannot import spare parts.

Even in the event of the U.S. lifting the sanctions, Iran’s oil industry may need years to recover its oil production to levels last seen just before the sanctions were imposed in May 2018.

The U.S. sanctions on Iran’s oil industry and exports have significantly cut Iranian oil exports, as the United States ended in May last year all waivers for all of Iran’s oil buyers and is going after anyone dealing with Iranian oil.

Iran continues to export oil, using all back channels it can think of. However, the primary buyer of Iranian oil under the ‘no exemption’ sanctions, China, is experiencing an unprecedented slowdown in oil demand due to the coronavirus outbreak, so it’s not clear how much oil Iran can place with its key customer in the coming months.

Meanwhile, the U.S. is now going after Iran’s floating storage. Washington plans to issue warnings to oil shippers, insurers, and port authorities that storing Iranian crude oil will bring the wrath of U.S. sanctions, a U.S. State Department official said on Monday.

By Tsvetana Paraskova for Oilprice.com