What Role for Oil in Iran's Private Sector?

EghtesadOnline: Private sector in Iran cannot make miracles happen in international oil business under the sanctions regime as it was never trained for a large and unknown market.

News ID: ۷۴۸۱۹۹

18 August 2019

Head of the Iranian Oil Products Exporters' Union, Abolqasem Hashemi, told IRNA on Saturday that "Oil is a strategic commodity and cannot be bought and sold easily as other goods;moreover, the territory is unfamiliar for the Iranian private sector," he added.

The National Iranian Oil Company has offered crude oil on the Iran Energy Exchange 14 times and hardly the first two were attractive.

Although offering crude oil on the stock market is part of government efforts to involve the private sector in  oil trade, it cannot produce the desired results in the short-term because the key constraint is that this business has always been under the full control of the government, Financial Tribune quoted him as saying.

"So long as NIOC was able to sell crude oil under the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action, it had no time for the private sector. But as the going got tough for normal business, it is resorting to the private sector, albeit a bit too late."

Hashemi went on to say that the NIOC never tried to enhance private sector expertise and make them familiar with the basics of doing business with oil giants. "Now it should not expect miracles from us".

Private enterprise will never "take a leap in the dark." Commonsense dictates that trading evolves gradually, so spending millions of dollars in oil business (without enough familiarity with potential buyers) would be an exercise in futility.

The energy expert believes that the private sector's hands are tied under the present circumstances because as soon as trade is undertaken, both the buyer and seller are easily identified which puts the two sides into trouble.

Criticizing NIOC policies, Hashemi asserted that as soon as strategic products like gasoline are offered on the Iran Energy Exchange, officials start to trumpet the news. This approach is wrong simply because such deals should be undertaken clandestinely. He did not elaborate.

For the first time in the history of Iran’s oil industry, 3,000 tons of Euro-5 gasoline was sold via IRENEX in early August.

The CEO urged government officials to put trust in the private sector as a matter of policy, not just when the sanctions bite.

He said transfer of money under the sanctions regime in a crucial factor in oil trade.

Fuel Smuggling

Asked about rampant fuel smuggling near the borders, he stressed that so long as energy is sold cheap, all the efforts to address the issue will fail.

"There is no strong will and determination to fight fuel  smuggling," he said, adding that the problem cannot be tackled unless energy carriers are sold close to global prices."

For instance, Iran has one of the world's cheapest gasoline. While average international price for the fuel is about 100 cents/liter, it is sold for 10 cents in Iran.

International Energy Agency data show Iran paid $45 billion in energy subsidies in 2017 (accounting for 15% of the world's total subsidies in energy sector), due to which fuel smuggling has long become more lucrative than drug trafficking, he claimed.

He concluded by saying that the policy of subsidizing energy has never and will never help the economy thrive as it is merely an "empty slogan" and accelerates the speed of plundering national resources.