Iranian oil: the revolution's blue chip, extremists' target
With oil prices sagging on the international spot market, Iran has unofficially cut its crude production since January by nearly half. Despite claims by Oil Minister Ali Akbar Moinfar that Iran still is pumping 2 .7 million barrels a day of crude (against government plans for 3 million), a top executive of the National Iranian Oil Company (NIOC) in the Khuzestan oil fields admitted that crude production had fallen to 1.8 million barrels a day.Skip to next paragraph
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Khuzestan, a steamy province bordering the Gulf, contains most of Iran's huge oil and gas reserves. The area recently has been struck by bad floods that submerged many villages and thousands of square miles along the Tigris River. However, officials at the state-run NIOC there claimed that flood damage was only temporary and hit the Abadan refinery much harder than it did oil-field operations.
NIOC officials also denied persistent petroleum-industry reports that the production drop was caused either by the departure of foreign experts after the Shah's overthrow or acts of sabotage by Khuzestan Arabs who, like the Kurds and other ethnic minorities in Iran, are fighting for greater autonomy.
Instead, Iranian authorities privately claim that closing off the crude valve is part of the new Islamic government's hawkish pricing policy.
Foreign sales out of that 1.8 million barrels of crude amounted to only 985, 000 barrels a day for the last week of February -- far below the 2 million barrel export level officially announced by the NIOC. At that rate, Iran just barely covers its existing crude contracts with British Petroleum, Shell International, Japan, and Brazil, leaving only a small amount to sell on the international spot market, where oil traders are tacking on an extra $2.50 a barrel to the standard price.
Oil brokers in London suggest Iran may be holding back production until spot-market prices once again shoot up into the $45 a barrel price range that exporters were charging last December during fears of an oil shortage.
Now crude goes for $10 less than that, around $35 a barrel on the Rotterdam spot market. As Prof. Peter O'Dell, a petroleum marketing expert in Rotterdam explained, "The spot market is so fat right now that the loss of Iranian crude isn't even noticed."
Before the Shah was toppled, Iran's capacity approached 6 million barrels a day, an export level ranked second only to Saudi Arabia's. But as Dr. Hassan Fatemi, NIOC's vice-Chairman of operations for Khuzestan, said, "We could easily open the throttle and push production to 4 million barrels, but why should we? At the current prices, Iran is already making more than enough money."
In fact, th revolutionary government cannot spend its oil revenues fast enough. Since the Shah's ouster, over $12.6 billion has been allocated to development. But Tehran economists estimate that only half of that sum has been pumped into badly needed agricultural and labor-intensive projects.
The politically fractious ruling Revolutionary Council is still bickering over long-term development priorities and also fears that dumping too much cash too fast into the country's stalled economy would boost Iran's inflation even higher. While crude prices stay sluggish, Tehran has no need to gear up production.
The flooding in Khuzestan caused a leak on a crude pipeline near Ahwaz that cut NIOC's huge Abadan refinery intake by 80,000 barrels a day. However, Ahmad Rafieyan, assistant manager at the Abadan refinery, claimed repairs were finished "two to three days" after the accident, enabling the refinery to return to its previous 600,000 barrels-a-day production.
Peak capacity for the refinery, which produces 100 different petroleum-base products -- everything from aviation fuel to bitumen for tarring highways -- is 640,000 barrels a day, Mr. Rafieyan said.
Otherwise, the only other damage caused by floods was to new drilling.