How reasonable is oil-for-goods deal between Iran and Russia?

Business Materials 13 September 2017 23:59 (UTC +04:00)

Baku, Azerbaijan, Sept. 12

By Khalid Kazimov – Trend:

Tehran and Moscow have appeared slow in the implementation of an earlier oil-for-goods deal.

According to the initial agreement, Iran was expected to launch exporting 100,000 barrels of oil to Russia on a daily basis this month. However, it seems that the officials are still in the negotiations process.

Earlier in September, Russian Energy Minister Alexander Novak said that the issue of arranging supplies of Iranian oil to Russia under the oil-for-goods mechanism is being worked out.

Considering the fact that the deal has been delayed, the Russian minister’s remarks indicate that the sides are still working on the mechanism of the deal and they have not achieved any obvious outcome, so far.

Novak’s remarks came only one day after comments by his Iranian counterpart Bijan Namdar Zanganeh who said Tehran is ready to export oil to Russia.

"We have no problems [about exporting oil to Russia]. They [Russians] should take the required measures," Zanganeh said on Sept. 5.

Zanganeh added that the Russian side had bank-related issues, but the problems have partially been solved and a leading Russian bank is expected to open a letter of credit for oil purchase from Iran.

Back in August, the Russian minister spoke about the oil-for-goods program which dates back to 2014 when Iran tried to boost vital energy exports in the face of intensified Western sanctions.

The speculations over the program sparked off serious criticism in the Iranian media and eventually Deputy Oil Minister for International Affairs and Trading Amirhossein Zamaninia briefed the public on the details of the program, saying the Russians under the agreement would pay off 50 percent of the value of the exported oil in cash.

However, nowadays with the removal of nuclear-related sanctions against Iran it appears that the oil-for-good contract has lost its significance as several leading companies have become interested in purchasing Iran’s oil.

According to OPEC, Iran’s August oil output stood at 3.828 million barrels per day (mb/d), 310,000 b/d more than the 2016 average and 992,000 b/d more than the 2015 output.

This is while Iran’s heavy oil price increased by 5.8 percent month-on-month to $48.70 per barrel in August. Iran’s major heavy oil price increased to $49.27 per barrel in 2017 from $36.60 per barrel in 2016.