1. NS4053 Winter Term 2015 Iran Sanctions: No Nuclear Deal
Oxford Analytica, Iran: Oil Sector Faces New Sanctions Without deal, October 2,m 2014

2. Overview of Nuclear Talks
Oxford Analytica, “Iran: Oil Sector Faces New Sanctions Without Deal,” October 2, 2014
Ongoing nuclear talks
Deadline November 24 after extending an interim arrangement in July
Deal would be expected
to set severe limits on Iran’s nuclear activities
to result in a progressive lifting of nuclear related sanctions imposed by the U.S, EU and UN
Agreement far from certain
How will Iran’s oil sector be affected by talks’ failure in the short and longer term?

3. Impacts of Sanctions Impacts
A lengthy period of slow economic contraction and stagflation is likely without a deal
As sanctions erode, China in particular would take more Iranian oil
By 2020 Iranian oil production and exports may be around 1 million barrels/day, below 2011 levels of
Iran’s main buyers would fill gap from other Middle East suppliers, most likely Saudi Arabia and (depending on security issues
Sanctions on Iran’s energy sector have been steadily ratcheted up in recent years resulting in significant under-performance relative to massive potential

4. Key Sanctions on Energy Sector
The key sanctions on the energy sector include:
Investment in Iran’s energy sector and the transfer of technology
The supply of refined products to Iran
The shipping or insurance of Iranian oil exports
The repatriation of Iranian funds from oil sales, except to by goods from the purchasing country; and
The export of petrochemicals or precious metals (temporarily suspended in the July package)
The most significant sanctions
Completely ban the export of Iranian crude oil to EU countries; and
Aim progressively reduce crude sales to other countries

5. Iran Sanctions Developments I
Currently only six countries permitted to buy Iranian oil:
China, India, South Korea, Japan and Turkey
They have been expected to cut their purchases on a continuing basis
Falling oil production
As a result crude oil production fell from around million barrels a day during 2011 to 2.77 million b/d in 2014
Country eared $114.8 billion from oil exports in 2011
This fell to $61.9 billion in 2013
In addition to sanctions, mismanagement during the Ahmadi-Nejad ( ) caused a fall in production

6. Iran Sanctions Developments II
No Deal Scenarios
Current talks likely to break down entirely in late November 2014
Continue for sake of appearances if no deal reached
In this case Obama administration would have to yield to Congressional pressures for additional measures
Efforts would be made to persuade Iranian’s remaining customers to continue reducing imports
Oil Market Conditions
Oil markets are easing with slow world growth and expanding US production
Gives US more chance of enforcing stricter sanctions
In event of Russian crises deepening or other event causing sharp rise in oil prices, sanction on Iran oil exports might crumble

7. Iran Sanctions: Longer Term Effects
Eroding Sanctions: In longer Term
China in particular would probably seek loopholes to sanctions regime while Iran would explore deals elsewhere
China could resort to more barter trade, a dedicated oil bank and using domestic refiners not dependent on international transactions
India has already made some progress in arranging alternative tankers and insurance
There has been repeated talk of an arrangement with Russia, although logistics are difficult
Turkey is likely to continue its gas purchases , given its need for alternatives to Russian supply
If sanctions erode slowly, Iran’s oil production capacity would continue a gradual decline, although lower production would ease the strain on its fields

8. Iran Sanctions: Assessment
Macroeconomic Implications
Competent management of economy could cushion the worst from the new sanctions
Assessment
With no agreement on Iran’s nuclear program US and EU sanctions will be intensified
Would reduce Iranian oil exports further in short term, damaging the Iranian economy
Over the rest of the decade sanctions would gradually erode
However lack of investment would cause permanent damage to Iran’s production and export capacity