Iran is shipping the most crude in almost five years, fortifying its re-emergence on the geopolitical stage while posing risks for a fragile global crude market.

Exports have surged to the highest level since US sanctions were re-imposed in 2018, according to a range of analysts including Kpler Ltd., SVB Energy International, FGE and the International Energy Agency. The vast majority is flowing to China, as the world’s biggest importer scoops up cut-price barrels from the Islamic Republic. 

Rebounding sales are the most tangible sign yet that the country — while still reeling financially from years of isolation — is reasserting itself, having started to repair ties with regional rivals, fostered relations with Asia’s leading power, and even begun a tentative diplomatic engagement with Washington.

Yet the extra supplies are sapping confidence in an oil market weakened by faltering economic growth and cheap Russian cargoes, frustrating efforts by Iran’s partners in the OPEC+ alliance to put a floor under crude prices. 

“Iran’s crude exports smashed it last month,” said Homayoun Falakshahi, a senior analyst at Kpler. “Iranian crude is extremely interesting for those willing to take the risk to buy.”

Crude shipments have doubled since last autumn to reach 1.6 million barrels a day in May, even as American sanctions remain in place, according to the firm. Production has hit 2.9 million barrels a day, the highest since late 2018, the Paris-based IEA estimates. Consultants SVB Energy, Petro-Logistics SA and FGE believe that output is even higher, maybe surpassing 3 million barrels a day. 

The recovery in flows — severely curtailed after former President Donald Trump quit a nuclear accord with Tehran in 2018 — could bolster an economy battered by rampant inflation, a plunging currency, and periodic unrest against hardline President Ebrahim Raisi.

It coincides with other signs of Iran’s revival: a preliminary accord with regional adversary Saudi Arabia in April, efforts to rehabilitate Syrian ally Bashar al-Assad, and clandestine talks to lower tensions with the White House. 

Through negotiations between intermediaries in Oman and on the sidelines of United Nations meetings, Washington and Tehran are inching toward an understanding to free American prisoners and explore limits on Iranian nuclear research, in exchange — according to a person familiar with the Iranian position — for leeway to ship more crude.

A State Department official said rumors of a nuclear deal are “false and misleading” and the US priority remains to stop Iran from obtaining a nuclear weapon. Iran says its atomic program is for peaceful purposes only.

Yet additional shipments —  adding to flows from two other OPEC+ members under sanctions, Russia and Venezuela — are already happening, hitting global oil markets. Prices have retreated 12% this year to near $75 a barrel in London, spurring a flurry of downgrades by forecasters like Goldman Sachs Group Inc. and JPMorgan Chase & Co. 

Iran’s surge has undermined efforts to stabilize the market by the Organization of Petroleum Exporting Countries and its leader, Saudi Arabia, which this month announced a new production cutback of 1 million barrels a day, to little effect. 

Ever since US sanctions were reimposed five years ago, Iranian crude has been shipped to its few remaining buyers on a so-called “dark fleet” of tankers — often aging and uninsured — that de-activate transponders to avoid detection. 

While tanker-tracking shows that China has remained Tehran’s main customer, official data registers no imports from the Islamic Republic in the past year. Instead, purchases have soared from Malaysia, where Iranian cargoes are often sent for transfer to another ship, blurring the consignment’s origins. 

“These ghost barrels are not counted in the official total,” said SVB founder and president, Sara Vakhshouri. But “while the whole of OPEC+ is trying to cut as much as possible, and Saudi goes with a voluntary cut, every barrel counts.”

Chinese refiners — especially smaller, independent companies in Shandong province — are ramping up purchases of Iranian cargoes as the price discounts offered by Tehran help offset a recent slump in profit margins, Kpler says. 

Iran has had to deepen discounts to its crude to compete with an influx of Russian crude pushed out of Europe by sanctions, according to Iman Nasseri, managing director at FGE in Dubai. The increased flow is drawing heavily from crude it had stockpiled on tankers to satisfy the demand, the companies say.

“China’s willingness to support Iran by taking its sanctioned oil, suggests a slight improvement in Iran-China relations,” said Greg Brew, an analyst at consultants Eurasia Group. “All of this supports the view that Iran’s position is improving, along with its advancing normalization with other regional states.” 

It was Beijing that brokered the fledgling detente between Iran the Saudis — a symbol of the growing closeness both countries seek with Asia’s rising power — as the Middle East rivals seeking to defuse decades of proxy conflicts, such as the ongoing war in Yemen.

Besides the increased appetite from China, some analysts have speculated that the surge has been tacitly permitted by a US government intent on keeping gasoline prices in check. Turning a blind eye could also help as the two countries work on a building a diplomatic channel. 

“There’s been less enforcement of the sanctions by a US administration wanting to counter Russian crude in the market while also keeping supply flowing,” said FGE’s Nasseri.

The impact on oil prices from Tehran’s comeback could be limited going forward. Crude deliveries to China may slow while authorities conduct a crack-down on bitumen mixture, which traders suspect is used as a cover for denser and cheaper barrels sold by Iran.

In any case, global oil markets are set to swing into a sharp deficit for the rest of the year as China’s post-pandemic rebound gathers pace, the IEA predicts. Demand will exceed supply by roughly 2 million barrels a day in the second half of the year, more than enough to absorb additional Iranian flows.  

Crude traders remain skeptical of the projected supply tightness, in part as the swelling tide of barrels from Iran casts a shadow on the outlook. 

“Negative supply side anxiety is palpably shaping the mood,” said Tamas Varga, an analyst at broker PVM Oil Associates Ltd. in London, adding that extra Iranian flows are part of that.

–With assistance from Sharon Cho, Serene Cheong, Alex Longley, Paul Wallace and Jonathan

On a trip to Russia, the Iranian road minister Bazrpash has called for a formation of joint shipping company between the two countries to facilitate trade and transit.

The Iranian Minister of Roads and Urban Development, Mehrdad Bazrpash, who arrived in Russia to participate in 26th St. Petersburg International Economic Forum (SPIEF), met and discussed with the Chairman of the State Duma Transport Committee, Yevgeny Moskvichyov.

During the meeting, a quadrilateral agreement was reached between Iran, Russia, Uzbekistan and Turkmenistan regarding the transit route, standard fuel, road and sea.

The two sides also agreed on the maritime domain and Amirabad, Anzali and Caspian ports.

The Iranian minister also met and held talks with the Russian President’s Special Aide, Igor Levitin, during which the sides discussed the transportation facilities from Volga and Caspian Sea.

Irek Faizullin, Minister of Construction, Housing and Utilities of the Russian Federation told the Iranian road minister in a meeting on the sidelines of the conference that his country is interested in the imports of Iranian-made construction materials as they are produced at a high quality.

Also, a joint meeting with the governors of Astrakhan, Chelyabinsk and Samara was one of the other plans of the representative of the Islamic Republic of Iran on that trip.

In that meeting, the Iranian road minister emphasized the importance of implementing the existing potential in relation to Russia and the establishment of a joint shipping company as soon as possible.

The 26th St. Petersburg International Economic Forum (SPIEF) is one of the biggest and most important business events in the world. SPIEF has been held annually since 1997. Since 2005, it has been held under the auspices of the President of the Russian Federation, who has also attended each event.

A.P. Moller – Maersk (Maersk), one of the world’s largest logistics companies, today announced a boost to its cloud-first technology approach by expanding the company’s use of Microsoft Azure as its cloud platform.

Azure provides Maersk access to a resilient and performing portfolio of cloud services, enabling its business to innovate and deliver scalable, reliable, and secure products with improved time to market. The cloud backbone enables Maersk to build scalable platforms to cater for organic and inorganic growth, supporting the Maersk transformation strategy. Further, the use of machine learning and data analytics will enable Maersk to gain greater ‎insights and support new ways of working.

With the expansion of its relationship with Microsoft, Maersk is looking to accelerate its transformation and to further digitize logistics.

The collaboration between Maersk and Microsoft has already brought innovative digital solutions to the market, such as Remote Container Management (RCM), which allows Maersk to monitor temperature and humidity data from hundreds of thousands of refrigerated shipping containers in real time to ensure that food and other perishables arrive in perfect condition.

Another project, Connected Vessel, aims at optimizing fuel consumption by monitoring performance data from Maersk’s container vessels to create a shared view with experts onshore who can provide advice to Captains, helping lower bunker costs and reducing emissions.

Both projects are great examples of the benefit of how digitization is bringing real value for Maersk’s customers and their businesses, as well as the commitment to decarbonize logistics.

As part of Microsoft’s commitment to actively use and scale low-carbon solutions for global supply chain activities, Maersk is a key partner for Microsoft in air freight, ocean freight and domestic services, providing logistics services to Microsoft. The companies also recently extended their Airfreight collaboration where Maersk intends to utilize their own controlled freighter network to support Microsoft’s Global supply chain.

Furthermore, the companies intend to work together to strengthen their global strategic relationship across three core pillars: IT/technology, ocean & logistics and decarburization. The main objectives of this work are to identify and explore co-innovation opportunities and to drive digital innovation and decarburization in logistics. Maersk aims to develop state-of-the-art solutions to accelerate and modernize collaboration and processes and to further enable modern work experiences to create value for its customers and employees.

The railway will connect Bostanabad to Khavaran, which is a section of the greater Miyaneh-Bostanabad-Tabriz project that forms part of the southern route of the Silk Road.

A newly constructed rail line is set to be augmented this week. The railway will connect Bostanabad to Khavaran (near Tabriz), covering a distance of 44 kilometers. The section is part of the connection between Khavaran and Miyaneh, which is now as good as complete. The completion shortens the distance between Khavaran and Tehran by 4-5 hours, and is about 114 kilometers shorter than the road distance between the vital nodes.

The railway connection between Tabriz and Miyaneh has been a hurdle in western Iranian railway transportation for years. Until now, trains had to take a major detour (see map). As a result of this new railway connection, trains can connects between the cities directly. With this, Iran has got a faster domestic logistics channel from East to West.

Connecting to Turkey

The rail way line could even have more potential if the connection from Khavaran to Tabriz is completed, the last missing link. Amir Ashri, who works for the Iranian firm MAPNA Locomotive, explained that this Miyaneh-Bostanabad-Tabriz project still needs some final touches. The final section between Khavaran and Tabriz needs to be completed in the future. Once this line has been fully finalized, it will be part of the southern route of the Silk Road, says Ashri.

The southern route of the New Silk Road runs through Iran and Turkey instead of Kazakhstan and Russia. The railway link between Tabriz and Turkey is already there. If the railway link between Khavaran and Tabriz is completed, the Miyaneh-Bostanabad-Tabriz line is connected to Turkey.

Trans Asia Railways

Apart from being part of the southern route of the Silk Road, this railway is also considered as the southern route of the Trans Asia Railways (TAR). Initiated back in the 1950s, TAR envisions a gigantic rail connection between Singapore and Istanbul, extending over a length of 14,080 kilometers.

The southern corridor in TAR aims to create a rail connection over Turkey, Iran, Pakistan, India, Bangladesh, Myanmar, and Thailand, with extended railways running from China to Southeast Asian countries. In 2006, an extensive Intergovernmental Agreement on the Trans-Asian Railway Network was developed, involving 25 countries in the project, with a lengthy document illustrating the to-be-constructed railways for each country. This agreement encompasses almost all Central Asian countries, China and India, as well as some Republic of Korea and Iran, with the latest development such as China and Laos railway. Nevertheless, the development of this massive rail project has come in an expected slow fashion, if not far-fetched.

Gauge differences

Obstacles across those 25 countries are quite obvious, one of which is gauge differences. Roaming across the southern corridor of TAR, one could spot at least three types of gauges. Iran and Turkey use the standard gauge (1,435 mm), while India, Pakistan, Bangladesh, and Sri Lanka use the so-called Indian gauge (1,676 mm). Moreover, most of the countries in Southeast Asia employ the meter gauge (1,000 mm).

Thus, for a journey starting from Bangkok, if the cargo manages to transport all the way via rail to Istanbul, it will first have to change from meter gauge to Indian gauge (from Myanmar to Bangladesh), then switch to the standard gauge when it passes Pakistan and enters Iran.

Geopolitical situation On the other hand, the geopolitical situation also hinders rail development. As Ashri explained, with the ongoing US sanctions, Iran’s infrastructure is facing heavy investment blockage. Moreover, forwarders are still hesitant to opt for the route through Iran considering that they may be in breach of sanction rules. Therefore, the potential of both the southern route on the New Silk Road and the TAR remains to be seen.

The railway route is part of the INSTC, directly connecting the ports of the Baltic Sea with the Persian Gulf and the Indian Ocean.

The construction of the Astara-Rasht transport corridor indicates the realization of Russia’s historical aspirations, Iranian ‘Akharin Khabar’ writes. The project received not only economic, but also strategic importance.

The adviser to the ex-president of the Islamic Republic, Hamid Abu Talebi noted that the international project of the North-South transport corridor, of which the mentioned railway line became a part, was “the realization of the historical aspirations of Russia from the tsarist times”, and that this project is “a story more about politics and security than about economics and trade “.

The main purpose of the corridor was to directly connect the ports of the Baltic Sea with the Persian Gulf and the Indian Ocean, or to create the shortest “path from the Varangian to the Persians”, which was a chain of transcontinental trade routes from the times of Ancient Rus’ and the Arab Caliphate.

According to Abu-Talebi, the Rasht-Astara branch turned out to be the missing link of the railway route from St. Petersburg, through Moscow, to the very shores of the Persian Gulf. The first part of this project was fully implemented, however, only in Soviet times, through the construction of a railway line, completed by 1941, to the southern border of Soviet Azerbaijan with Iran, or to the Astara customs. The second link was to be the construction of a section to the Iranian city of Rasht, but the project was frozen during the Cold War.

Until now, the role of the shortest route was played by the route along the waters of the Caspian Sea, from Astrakhan and further, bypassing the territory of Central Asia, to the port of Chahbahar in southeastern Iran.

The final understanding of how exactly to complete the link of the routes of the North-South transport corridor came during the last visit of the head of the Iranian government to Moscow. Then it was finally decided that the route would be a chain of railroad tracks, while the goods would no longer have to wait for loading from the railroad to sea vessels and back, and the transit time for transporting goods would also be significantly reduced.

The significance of this route has increased even more since the start of Russia’s special military operation in Ukraine and the introduction of extensive Western sanctions against Russia, as well as after Finland’s entry into NATO.

Now the international transport corridor received the strategic importance. And in the same way, the section of the railway from Rasht to Astara acquired strategic importance.

A new airport has been launched in Iran’s remote east amid efforts to expand transportation infrastructure in the region.

A Thursday flight carrying Iran’s parliament speaker Mohammad Baqer Qalibaf and other senior government officials was the first to land in the airport in Gonabad, a city of nearly 50,000 people located some 230 kilometers from the Iranian border with Afghanistan.

The airport has been launched to boost economic activity in the region, according to a report by the official IRNA news agency which said that businesspeople in Gonabad and other cities in the region had to travel some 300 kilometers to reach the nearest airports in Iran’s east.

The project started some 30 years ago, said the report, adding that it accelerated in recent years amid Iran’s plans to complete a north-south transit corridor that passes through its east.

Gonabad is one of the key cities in Khorasan Razavi, an Iranian province where Iran’s second largest city of Mashhad is located.

Business activity in the region is expected to grow with the construction of a key railway from Mashhad to Zahedan near the border with Pakistan that passes via Gonabad. The railway will continue from Zahedan to Iran’s only ocean port of Chabahar on the Sea of Oman.

The government has spent some 35 trillion Rials ($75 million) on the construction of a first phase of the airport in Gonabad, said the report by the IRNA which added that investors had agreed to pay for charter flights to and from the airport in the next 10 months to help boost its traffic.