If we’re getting oil from Russia, why not Iran? 

ISLAMABAD: As the latest announcement from the government came on Monday regarding positive discussions with Russians on several proposals involving oil and gas, a question arises: Why don’t we source our energy requirements from Iran? 

Although it is widely believed that due to sanctions and trade embargoes on Iran the country is not able to trade with other countries hence damaging the economy. This is untrue, there is a huge market for Iranian oil in Asia especially China and India. 

Industry experts believe that shipments of Iranian crude oil to many nations, including Malaysia, were transferred to other ships and blended with crude oil grades that did not originate in Iran before they were shipped to China, according to a report by the US based Energy Information Administration on Iran.

Industry analysts also claim that in order to avoid being discovered by customs officials, a large portion of the oil that was exported from Iran to China was relabelled from nations like Malaysia, the United Arab Emirates, and Oman. Small amounts of crude oil and oil products have been delivered to Syria as well, largely as part of barter agreements and through lines of credit with Iran.

Exports of liquids like petroleum make up a sizable portion of Iran’s income. The country’s oil industry saw an increase in net oil export revenues to roughly $40 billion in 2021 from about $15 billion in 2020.

As a result of rising global oil prices and a rise in Iran’s overall shipments of petroleum liquids from 2020, total export income increased in 2021. According to EIA projections, Iran will earn more money when oil prices rise in 2022.

Iranian oil outlook  

In case you’re not aware, Iran has the third largest reserves with respect to oil and gas. According to the US based Energy Information Administration (EIA), Iran was the third-largest producer of natural gas in the world in 2020 and the fifth-largest producer of crude oil in OPEC in 2021. It ranks as the third-biggest oil and second-largest natural gas reserve holder in the world in 2021 and has some of the largest amounts of proven oil and natural gas reserves.

Iran has 12% of the world’s and 24% of the Middle East’s oil reserves as of the end of 2021. Despite having large reserves, Iran’s crude oil production has decreased since 2017 due to underinvestment and international sanctions that have affected the oil industry for a number of years. 

Iran’s crude oil production might resume at its full potential, which is estimated by the EIA to be 3.7 million barrels per day, if sanctions were lifted. As of September 2022, indirect talks between the United States and Iran on Iran’s nuclear programme are still ongoing. 

Why don’t we formally buy it from Iran ? 

If Pakistan is willing to engage with Russia, which is heavily sanctioned by the west, the question remains why don’t we source oil and gas from Iran instead ? Practically speaking it would be cheaper and logistically more feasible as compared to any deal with Russia. 

The short answer to this question is that since Iranian oil is heavily sanctioned purchasing it would attract unwanted attention from the US, Saudi Arabia and international financial institutions. 

For these reasons and issues concerning how payments can be made for large volumes of oil and refined products Pakistan is unable to access cheap Iranian oil and gas. 

The offer from Iran to Pakistan to purchase gasoline, power, and gas is still valid, according to Iranian Ambassador Mohammad Ali Hosseini, who spoke exclusively with a private television channel in October.

According to the Iranian envoy, Pakistan can get petroleum products in exchange for other products whenever it wants, and Iran is also willing to provide all the gasoline required by Pakistan.

However it is virtually impossible to formally buy Iranian oil for two main reasons. The bulk of institutions that deal in US dollars are under US control, hence they won’t permit simple US dollar transactions with Iran.

Second, as part of the sanctions, the US will punish anyone it learns is conducting business with Iran. The majority of financial actors won’t engage with Iran because of this penalty and the US’s level of influence on the global stage.

Oil in black

In reality however there’s a huge black market for Iranian petroleum products in Pakistan, especially in Balochistan, according to sources in oil marketing companies. A significant portion of the petroleum products being utilised in Balochistan is sourced from Iran, which is openly allowed by the Frontier Constabulary (FC), according to senior sources in the oil and gas sector. 

This also allows space for other illicit activities in the region particularly involving smuggled goods from Iran. For this very reason any crackdown on these activities is met with resistance from within the ranks of Pakistan’s various institutions that rely on under the table deals with Iran for commercial gains.

Due to a lack of approved alternative mechanisms, oil and diesel have been flowing across the porous borders with Iran for a while. The primary factor is that it is less expensive, and therefore consumers from the province and other parts of the nation are drawn to it. 

The Pakistani market is no different than other consumers that prefer the cheapest rates, however, the primary limitation of the country is its economic vulnerability.