Oil market prospects look dim for Iran as the US sanctions to be implemented in November are planned to target the government's lifeline, namely the country's oil export, and the international banking operations vital for repatriating oil revenues.
In the meantime, unlike the pre-2015 sanctions for which Iranians blamed the United States, two rounds of major protests in the winter and summer of 2018, showed that now the people in Iran blame their government for economic hardship. One of the major slogans in demonstrations that continued throughout 2018, was "The enemy is not America, our enemy is right here."
One of the objectives of the second round of US sanctions is to bring Iran's oil exports zero. However, many Iranian and non-Iranian economists believe this is impossible, although they agree that the sanctions can bring down Iran's oil exports to as low as one million barrels per day.
It is still not known if this level of oil export would be enough for the Iranian government to run its day to day operations, feed the nation and provide for health, education and other necessities.
After the 2015 nuclear agreement and before the imposition of the first round of renewed US sanctions this year, Iran's crude oil production gradually had risen to around 3.7 million barrels per day; with 2.7 million b/d being exported. However, the latest trends have been showing a decline in production, according to the Central Bank of Iran (CBI).
As the threat of sanctions began to emerge last year, Iran has been facing serious economic problems including high inflation, recession, unemployment, rising prices and dramatic fluctuations in exchange rates which marked a serious devaluation of the national currency.
The drop in oil exports to one million b/d can potentially bring about even more problems particularly in the absence of proper planning while corruption and mismanagement throughout the system make life even harder for Iranians.
So far, Iranian officials have been planning measures to supply essential commodities such as bread, rice, sugar and meat to the low-income strata of society when sanctions begin to bite harder, which is after November 5.
Meanwhile, as the specter of renewed sanctions led to a big reduction in oil exports to countries such as India and south Korea, which are among the biggest customers of Iran's oil next to China, and EU countries, Tehran was hoping that shortage of oil in the global market would increase prices, but according to Reuters, "rising oil production from Saudi Arabia, the United Arab Emirates, Kuwait and Russia has eased concerns about the availability of supplies once U.S. sanctions on Iran are re-imposed in November."
This means Iran cannot count on higher prices and more oil revenues to offset declining exports.
However, another opportunity has risen for the government. Iran’s currency has lost its value almost five-fold this year. Now, selling dollars from the oil income at a much higher rate on the local market, gives the government so much more rials to take care of its domestic operating expenses. In the absence of transparency, anecdotal accounts by foreign-based economists put this figure at 3,800 trillion rials or around $25 billion.
According to an Iranian Central Bank report, the unexpected rise in the government's oil income during the past five months has been less, at 540 trillion rials, at least 18 percent more than what it expected. In dollars, Iran’s income has actually declined but in rials, it has increased, enabling the government to pay at least part of its bills. But a devalued currency leads to many other economic problems and popular anger.
But some experts say oil prices might drop further. "Oil prices are now trending downward, falling for a third consecutive week as global stock markets tumbled and oil markets focused on a weaker demand outlook for crude going forward. … Moreover, in a sign of things to come, hedge-fund and money managers are trimming their bets that crude oil prices will rise," says oil market analyst Tim Daiss.
Perhaps it was this dim prospect that led Iran's President Hassan Rouhani who always denied possible impact of the new round of sanctions, to admit in his October 27 speech at the Iranian Parliament that "America is brandishing its swords, and we have to fight it."
At the same time, he boasted about Iran's foreign exchange reserve currently estimated at $100 billion being in "its best situation in five years," which indicated he was hoping to spend the country's saving in hard days rather than relying on oil revenues that might not materialize.