Iranian exports of crude oil fell sharply in April, and could be down by as much as 1 million barrels a day, as many countries seek to reduce their imports of Iranian oil ahead of sanctions set to come into full effect later this summer, the International Energy Agency (IEA) said in a report released earlier this month. President Barack Obama has until June 28 to decide whether countries that purchase Iranian oil have significantly reduced their purchases, or face a cutoff in access to the U.S. financial system under legislation signed in December.
Separately, the European Union is set to enter into a complete embargo of Iranian oil on July 1. As countries diversify their purchases ahead of both sets of sanctions, U.S. officials say Iran's declining customer base for oil, as well as prohibitions on Iran's central bank, are having a broad impact on the overall Iranian economy. "The value of their currency has dropped like a rock and that has a significant impact on Iran's ability to pay for the material it needs for its nuclear program," David Cohen, Treasury under-secretary for terrorism and financial intelligence, told an audience in Washington earlier this month. "They are increasingly isolated - diplomatically, financially and economically," he said. "I don't think there is any question that the impact of this pressure played a role in Iran's decision to come to the table," for talks with the United States and its allies about the nuclear program.
As the sanctions deadlines draw nearer, Iran is losing oil revenue because of both declining sales volume, and declining prices as countries that still purchase the crude see it as a distressed asset, and seek to negotiate steep price discounts on every barrel purchased. To be sure, Iran is still producing a great deal of oil. In its report, the IEA said Iran was pumping about 3.3 million barrels day. But as most of Iran's customers reduce their purchases, the agency said much of Iran's excess production is being diverted to storage both onshore, and aboard floating tankers at sea. Estimates of Iranian oil added to floating storage since March range from 450,000 to 800,000 barrels a day, while an additional 20 million to 25 million barrels have been added to onshore facilities, the IEA said.
Once on floating storage, Iranian tankers have been turning off ship transponders so their movements are more difficult to track. Analysts who follow the Iranian program say the elusive tactic serves two purposes: It allows Iran to ply the seas and engage in covert sales of the crude, often at greatly discounted prices. Also, Iran is loathe to signal to the world a high volume of floating storage, as that would be an acknowledgment that the sanctions are having an impact. The tracking systems are required by international law on seagoing tankers as a means to protect against accidents and spills.