Wednesday, October 13, 2010

Iran Demands Increased Fees for Oil Swaps

Iranian Oil Minister Massoud Aghazadeh Mir-Kazemi has announced that Iran would continue oil swaps with the its Caspian neighbors if the transit fee is quintupled, according to IWPR author Ebrahim Gilani (pseudonym for an Iranian journalist and foreign policy analyst in London.) Mir-Kazemi said the oil swaps were costing Iran money since it had to reduce its own oil production by the amount it shipped for the Caspian states, to keep Iranian production under the targets established by the Organization of Petroleum Exports (OPEC.) Mir-Kazemi counted Iran as losing almost $70 a barrel (the cost of a barrel of oil on the open market) for the foregone oil production, rather than gaining $1 a barrel in transit fees. He indicated, however, that swaps could continue if the oil companies raised their fees to $5 per barrel. (Clouds on Iran's Caspian Horizon, IRN Issue 55, 30 September 2010)

In the oil swaps that Mir-Kazemi is discussing, Iran receives a certain amount of oil from the Caspian littoral states of Kazakhstan, Turkmenistan and Azerbaijan. In return, Iran ships the same quantity of oil from its southern ports on behalf of its neighbors. All three source countries have a limited ability to market their crude on the international market because they are no direct routes to the world's oceans. These countries are forced to rely on sending their product via third countries: Russia, China or Turkey via pipeline; or, Iran via oil swaps.

Mir-Kazemi's mathematics are flawed, in that Iran would need to produce the same amount of oil in any case. Caspian oil that Iran receives from its northern neighbors is used by Iran domestically, freeing the Iranian production for export. Under the new arrangement, Iran loses the transit fees and still has to produce the same amount of oil--only it has to sell the oil previously used in the oil swaps at domestic prices instead of international prices. The pricing dispute is both an inconvenience to Iran's neighbors, and a net revenue loss to the Islamic Republic.

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