Iranian President Hassan Rouhani announced proudly this weekend that Iran had discovered a massive new oil field containing more than 50 billion barrels of reserves—a figure that would increase the country’s already sizeable oil reserves by a third.
But as it turns out, the bold claim is less substantive and more for show to instill hope in Iranian citizens that are no doubt feeling the weight of the US sanctions as its influx of cash from its oil business shrinks.
Still, Iran made headlines in the oil market this week. And it’s a welcome deviation from the typical plunging oil export headlines as the U.S. sanctions eat into its bread and butter, or headlines about its creative secretive ways to skirt those sanctions and keep selling its oil to customers.
But wasting no time, other Iranian officials, including oil minister Bijan Zangeneh, quickly backpedaled from Rouhani’s mind-blowing figure, and now Iran says that it could be able to possibly recover just 2.2 billion barrels of oil from that 50-billion barrel find.
Desperate to show that U.S. sanctions are not impacting Iran’s oil industry, Rouhani used the announcement of the new discovery for publicity, and for garnering support from Iranians, who are suffering economically amid a steep recession and surging inflation, energy historian and Senior Contributor to Forbes, Ellen R. Wald, writes.
Despite the fact that the announcement of what was touted to be the biggest oil discovery in the world of the year, or even in recent years, may have been good PR for Iran’s President, the reality check paints another picture: it was just PR.
Reports have it that the oil find is of the very heavy variety, which is difficult to extract, even if Iran had the ability to tap the best drilling services and exploration and production companies in the world to develop it.
But Iran can’t do that on their own, and no one else is willing to touch Iran’s oil sector with a ten-foot pole, fearing they would be cut off from the U.S. financial system or slapped with secondary sanctions for dealing with Iran.
This discovery—nor future discoveries, really—are unlikely to change the dire conditions of Iran’s oil production and exports any time soon.
The severely crippled oil exports are already effecting Iran’s government revenues—most of which come from oil sales.
Iran is still selling some of its oil off the grid, but exports have been cut by around 2 million barrels per day from a peak of 2.5 million bpd at one point in early 2018, to just around 500,000 bpd or less in recent months, according to various estimates.
The Islamic Republic and its president Rouhani continue to claim that Iran sells and will continue selling its oil by any means possible, trying to downplay the severity of the sanctions.
In reality, the severely reduced oil income has crippled the government budget and the economy.
“Iran’s economy has entered a steep recession. Output in 2019 is expected to shrink by 9.5 percent as US sanctions have continued to tighten. Iran’s main export, oil, is severely restricted, and imports have collapsed,” the International Monetary Fund (IMF) said in its Regional Economic Outlook for the Middle East and North Africa last month. Iran’s fiscal breakeven oil price—the one at which the country would be able to balance its budget—is US$194.60 a barrel for 2020, the IMF reckons.
Earlier in October, the World Bank said that Iran’s economy is set to shrink further by 8.7 percent in 2019/20, due to external shocks to oil and gas sector output. In the medium term, the economy could grow by 0.5 percent annually in 2021 and 2022, but from a very low base, while inflation—albeit moderating—will still be above 20 percent, the World Bank says.
The situation is now so dire for Iran that Rouhani himself has finally conceded that it is now very difficult to run the country with severely crippled oil revenues, in contrast to previously defiant statements that Iran will withstand any sanctions of its ‘enemies’.
“We have never had so many problems in selling oil. We never had so many problems in keeping our oil tanker fleet sailing,” Rouhani said in a speech this week, as carried by Radio Farda.
With Iran’s economy in recession and people feeling the sting, and with the government scrambling to replace oil revenues with other sources of budget proceeds, Iran’s claims of giant oilfield discoveries should not be taken at face value.