Iran using Russia’s playbook to grow oil exports amid US sanctions

Hey everybody, Peter Zeihan here coming to you from Colorado, a quick video today about what’s going on with Iran and oil markets. 

Over the course of the last couple of weeks getting into July, we’ve had Iranian oil come on market in a surprisingly large volume. We’re looking at about 1.6 million barrels a day of exports right now, which is the highest we’ve seen in five years. I mean, really, since near the beginning of when the Obama administration really worked to curtail Iranian exports, so we’re looking at a significant high. 

But if you look at overall production, it has hardly shifted at all, it’s about 3 million barrels a day. What’s happening here isn’t that more oil is hitting the market, it’s that more oil is hitting the legal market. A lot of the sanctions that are being used right now against the Russians that are forcing the Russians to sell crude at a 20 to 25 dollar discount per barrel have been in place on Iran for years. In fact, they were in many cases designed for the Iranians, and now those strategies were picked up and applied to the Russians. And what the Iranians have discovered is that if they do the same thing that the Russians have done, sell their crude on international markets at a massive discount, then they come in under the sanctions regime as illegal exports, and that’s really all that’s happened here. 

They’ve moved their exports from the gray sector, into the white sector, and in doing so the official data for ones is actually getting closer to accurate. It used to be that you know, over a million barrels a day, which is smuggled. Now, for the Iranians staying in the good graces of the oil markets, in general and to consumers in general, even in the United States in general is much, much, much more important than it is to the Russians. The Russians see themselves as in a state of existential crisis, and they know that over the course of the next few years, if they’re going to lose the capacity to act militarily at all, therefore, there really is no price that is too high, considering their goals at hand. 

Iran’s not in a situation like that. Iran is obviously in an ongoing jousting match with the United States about everything in the Middle East, but the life and death enmity that is developed between Moscow and a lot of the world just isn’t there. There’s hostility, certainly I don’t mean to suggest that this is all sunshine and rainbows. But Iran is not fighting for its existence here, and that gives it a little bit more patience in dealing with this or that. Second, despite Russia’s many, many, many failings, it is still a significant manufacturing power and agricultural power. It produces a lot of what it needs, even if the quality is horrible. Iran doesn’t. 

Iran never industrialized like the Soviet system did, and they rely on the outside world for cars and for planes and electronics and paperboard and food. And so they need to maintain connections to the rest of the world in order to survive as a modern state at all. And that means they’re willing to suck it up politically in cases where the Russians wouldn’t even consider it. 

There’s an opening here diplomatically, should the Biden administration choose to take it — no idea that it’s going to happen. But it does mean that the Iranians are more willing to do something that the Russians will not even consider. Let’s talk — and that provides some opportunities for both sides. Okay, that’s it for me. You guys. Take care.