Iran Selling More Oil In 2021 But Middlemen Reap The Profit
As annual inflation rate in July-August reached nearly 50 percent, Statistical Center of Iran (SCI) reported that prices for imports have jumped by 506 percent since March, compared with 2020. This steep increase which is naturally passed on to consumers, is calculated in Iranian rials, but even based on US dollars, imports cost 53 percent more this year.
While inflation among Iran’s trading partners such as China, European countries and the United Arab Emirates is around two percent, what can explain the huge jump in price of imports for Iran?
The CSI report shows that prices for imports such as optical and photographic equipment, machinery and electrical products, as well as chemicals had the largest price increases.
The 506 percent jump in price of imports based on rial can be partly explained by the falling value of the Iranian currency that declined 50 percent in this period. Another factor is the reduction in government supply of cheap dollars to importers. But calculated in dollars the 53 percent increase can only point to higher expenditures in the process of imports.
One of these factors is that Iran has to barter oil with goods, having little foreign currency income due to US sanctions and also banking restrictions that hamper international trade. Another factor is the use of middlemen, who often operate on the margins of legality charging considerable sums for their services selling the illicit oil and to buying goods to ship back to Iran.
Higher insurance and transport rates is another factor that pushes the price of imports higher even calculated in US dollars. Iran’s former vice president Es’haq Jahangiri and other officials have said that international trade is 25 percent more expensive because of US sanctions. Insurance companies stay away from any shipment related to Iran.
Mehdi Mirashrafi, the head of Iran’s Customs Organization said in April that sanctions cost Iran 10-20 percent more in transport costs for exports and imports. But this explains part of the 53-percent dollar increase in cost of imports.
It appears that illicit export of oil through middlemen and purchase of goods through the same operators is the most important factor in raising the cost of imports.
But what is the monetary value of non-official exports of oil? Iran’s treasury reported that in the first three months of the current Iranian year (March 21-June20) the country was able to achieve only three percent of its projected oil sales. However, international oil trade monitoring groups such as Kpler say that Iranian exports in spring 2021 was twice more than last year, and in addition world oil prices have were much higher this year.
Iran had planned to export 2.3 million barrels of crude per day and it has achieved about one-third of the target (650,000 bpd), based on these estimates. The price for one barrel of crude has climbed from $40 in 2020 to $60 this year. Therefore, Iran should have been able to achieve 40 percent of its projected oil income but is reporting just three percent.
Bloomberg and Reuters also reported this year that Iran exports most of its oil through intermediaries to be delivered to China. Customs data from China also strangely show zero oil imports from Iran, while in 2019 and 2020 Chinese government-linked companies were officially buying at least 80,000 bpd.
Intermediaries change export documents to show a different origin for Iranian oil such as Iraq, Oman, the United Arab Emirates or Malaysia. They also buy goods that Iran needs and ship it back to Iran profiting twice from these transactions.
Although Iran might have increased it oil exports this year in terms of volume, but in terms of cash income or economic benefit, a considerable part is wasted in the export-import process.