Royal Dutch Shell Plc  .com Rotating Header Image

THE WALL STREET JOURNAL: Oil Minister Asserts Iran Won't Cut Exports Despite Nuclear Standoff

Oil Minister Asserts Iran Won't Cut
Exports Despite Nuclear Standoff

April 26, 2006; Page A1

With Iran facing a showdown with the West over its nuclear ambitions, its top oil official said yesterday that the country would not use its oil exports as a political weapon and that it already is struggling to meet its own domestic oil demand.

[Kazem Vaziri Hamaneh]

Oil Minister Kazem Vaziri Hamaneh, in an interview with The Wall Street Journal, said Iran has the capacity to disrupt world oil markets, but doesn't intend to do so. “The need of the world for energy is soaring, and if Iran is taken out of the equation, prices will shoot up and there will be big difficulties in the energy markets,” Mr. Vaziri said at a meeting of top officials from the Organization of Petroleum Exporting Countries and consuming nations in Doha, Qatar.

But Mr. Vaziri, a career oil technocrat who was not the first or even second choice of Iran's hard-line president, Mahmoud Ahmadinejad, also suggested that his country's willingness to keep supplying world oil markets could win it better treatment from the United Nations Security Council as it takes up Iran's case in coming days.

“In my opinion, there are reasonable people in the U.N., and when they are looking at this issue and seeing our activity, they will decide with logic and prudence,” he said through an interpreter.

He added that for its part, Iran has not cut off exports despite turmoil in the past two decades. “We don't want to cause hardship for any consumers around the world,” he said. “We have a commodity and we want to sell it, and we are doing our best and we have shown in the past we are a very reliable source of supply and meeting the demand of the world.”

The Security Council has demanded that Iran suspend its production of enriched uranium — usable for nuclear fuel or potentially nuclear weapons — by Friday, a demand Tehran has rejected.

Yesterday, Iran threatened to begin hiding its nuclear program if the West takes any “harsh measures” against it, to end cooperation with the International Atomic Energy Agency and to transfer nuclear technology to Sudan. Secretary of State Condoleezza Rice shot back, “Iranians can threaten, but they are deepening their own isolation.”

[Iran Oil]

As tensions over Iran's nuclear program have mounted in recent months, Iranian officials have threatened to cut off Iran's oil exports, shut down shipments out of the Persian Gulf through the Straits of Hormuz and impose other unspecified punishments on the West if their country is subjected to international sanctions.

The heated exchanges make Mr. Vaziri's soothing words particularly surprising, and may hint at serious differences inside Iran's complicated political leadership about how to handle the coming showdown at the U.N. They may also reflect a broader economic reality: Iran is highly dependent on oil exports for revenue, so a cutoff could deepen pain in its already stressed economy. The U.S. Energy Department estimates that oil exports account for 40% to 50% of Iran's total government revenue.

With the U.N. deadline looming, worry about a loss of Iranian crude helped last week to push oil above $75 a barrel, the highest ever in nominal terms, though prices have been higher taking inflation into account. Crude is up 34% from a year ago today and 19% year-to-date.

Yesterday, crude oil finished down 45 cents, or 0.61%, at $72.88 a barrel on the New York Mercantile Exchange, the second straight decline since crude closed at $75.17 on Friday. The drop came as President Bush said he would suspend deposits to the U.S. strategic petroleum reserve to boost supplies, and seek to relax some antipollution rules. (See related article.)

Mr. Vaziri, who has been in office since December, is a career oil bureaucrat, not a politician. Mr. Ahmadinejad nominated several other candidates to be oil minister before him, but they were rejected by the Parliament and the religious leadership, who complained that earlier candidates lacked the technical expertise to handle the portfolio.

Some analysts yesterday suggested there is a growing bloc of influential political figures in Iran eager to find some compromise on the nuclear issue rather than force a confrontation with the West.

“There are definitely more moderate forces within the regime who are sending out messages that Ahmadinejad is a radical fringe and will harm the system…Vaziri is part of this effort,” said Abbas Milani, head of Iranian studies at Stanford University.

The U.S. and Europe have said they would call for sanctions to be imposed gradually and would not punish Iran's customers by demanding an outright ban on Iranian oil exports. Still, a move to slowly choke exports would reverberate throughout already tight world oil markets and could cause further price increases, since customers would be forced to seek oil elsewhere. It also could open the door to energy-hungry nations such as China to purchase more Iranian oil and deepen their own ties with the country.

Mr. Vaziri's remarks yesterday suggested that Iran would suffer at least as much if sanctions were imposed on its oil industry. He acknowledged that economic sanctions could make it harder for Iran to pursue an ambitious $50 billion investment program to bolster its oil and gas output over the next four years. Iran is expected to earn about $54 billion from oil exports this year, up from $47 billion last year, according to the Centre for Global Energy Studies in London.

Iran is the second-largest exporter in OPEC and the fourth-largest producer in the world. Iranian production represents some 5% of global supply. That contribution is especially important now, when other big producers are pumping nearly flat out to satisfy demand.

In the past decade, Iranian output has stagnated at about four million barrels a day with the involvement in recent years of a handful of foreign oil companies. Meanwhile, Iran's domestic consumption has soared, reducing crude-oil exports, now about 2.5 million barrels a day. Domestic gasoline use has significantly outstripped domestic refining capacity, forcing Iran to import large volumes.

Mr. Vaziri, who joined Iran's national oil company in 1981, soon after the Iranian Revolution, said Iran plans to finance about half of its expansion plans itself, with the remainder coming from foreign sources. Of the total, Iran has earmarked as much as $13 billion for developing oil fields.

Already, those efforts are being slowed by sharply declining output at its existing fields. Oil was discovered in Iran almost 100 years ago, decades before the discovery of most other giant fields in the Middle East. Mr. Vaziri said the country needs the big, new investment to create fresh crude-oil production capacity of some 1.3 million barrels a day by 2010. But with average output-decline rates of some 6% to 7% a year from existing fields, those new fields would only bring a net addition of some 500,000 barrels a day in the time period, he said.

That plan doesn't account for another problem: soaring domestic consumption, which is eating into the amount of Iranian oil available for export. Mr. Vaziri said his country's gasoline use is growing at an eye-popping rate of 10% a year. Already, Iran is importing 25 million liters a day of gasoline, equivalent to nearly 160,000 barrels a day. Plans to add new refining capacity could gobble up another 500,000 barrels a day of Iranian crude production — leaving no new crude to export to the rest of the world.

“We have a problem in the use of gasoline,” Mr. Vaziri said.

Analysts say Iran's oil output prospects are dimmer. The decline rates cited by Mr. Vaziri add up to a loss of at least one million barrels a day by 2010. Just to keep its output steady, Iran would have to add that much in new production. With rising gasoline use, Iran's oil exports could slip, even without the impact of any sanctions.

“If everything goes right, Iran could get output up to 4.2 to 4.3 million barrels a day by 2015,” said Michael Rodgers, a partner at PFC Energy, an industry consulting firm based in Washington, D.C. Anything that restricts the import of services and equipment, including economic sanctions, can only reduce Iran's oil production, Mr. Rodgers and other analysts said.

U.S. companies have been barred from investing in Iran's oil industry since the mid-1990s. More recently, the political tensions between the West and Iran have prompted other foreign firms, including London's BP PLC, to walk away from negotiations with Tehran.

Mr. Vaziri said that four or five months ago, Iranian oil officials worried that the heightened tensions would discourage other oil firms from bidding for Iranian projects. But those fears proved to be unfounded, based on interest in recent tenders for big gas projects, he said. He didn't name any companies that have shown interest.

“Our feeling proved to be wrong. We saw very good participation even with the big companies,” Mr. Vaziri said. “If American companies are not participating, they are the ones that really are missing out.”

But he also pointed to the investment as evidence of Iran's good intentions as a supplier. “We are putting an enormous amount of money into oil, gas, petrochemicals, refining,” he said. “Why are we doing it if the intention was to stop it? We are putting money into refining not only to meet our internal demand but to meet part of the international demand. So this shows how serious we are to be reliable suppliers of these products to the world market.”

—- Marc Champion contributed to this article.

Write to Bhushan Bahree at, Carla Anne Robbins at and Chip Cummins at

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.