By , for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.
On Aug. 18, Iranian officials announced that they had now put in place the infrastructure to swap up to 500,000 barrels per day (bpd) of crude oil with its Caspian neighbors.
Under these agreements, Iran would receive crude oil from Caspian producers at the northern port of Neka, feed that crude to northern refineries and then allocate crude oil from southern terminals to international clients designated by the Caspian producers.
Prior to 2010, Naftiran Intertrade Company (NICO), a subsidiary of the National Iranian Oil Company (NIOC), oversaw this practice. In 2010, Tehran stopped the swap arrangement, arguing that the $1 a barrel fee charged had to be increased and based on the international crude oil price. Tehran realized that the Caspian producers’ alternative route would be to use the Baku-Tbilisi-Ceyhan pipeline at a much higher cost.
In 2012, NICO tried to revive the old swap deals. In the interim, however, the Iranian petroleum sector had been subject to EU and US sanctions, including NICO being put on a US blacklist, meaning that any direct trade, even by non-US companies, with NICO would lead to US penalties being assessed.
Following implementation of the nuclear deal between Iran and the six world powers in January 2016, Iran’s Ministry of Petroleum indicated its interest in reviving the old swap arrangements. In fact, the infrastructure for a return to swap deals is fully in place. Iran has two crude pipelines running from the port of Neka to the refinery in Ray, south of Tehran.
The combined capacity of these pipelines was originally 150,000 bpd, but has now been increased to 500,000 bpd. Using Caspian oil in northern refineries apparently helps Iran save on transportation costs for its own crude from southern provinces to the north.