Last updated on December 3rd, 2018

The Iran Energy Exchange (IRENEX) is Iran’s old and alternative plan to monetize its oil. IRENEX was established in 2013 as a regulated exchange for trading of energy-related products and securities. For the last four years, it served as an exchange for trading petroleum and petrochemical products, excluding crude oil. Iranian authorities now feel the need use IRENEX to cater to their export potential.

Even before the US secondary sanctions hit Iran’s oil and petroleum products exports, threats started revolving around, bringing down the volume of crude oil and gas liquids exports from 2.7 million barrels per day (mbpd) in May to 2.2 mbpd in October. The US sanctions came into effect November 5. While the US has issued a few waivers to Iran, on a larger front it can be seen that Iran won’t be able to return to its old level of exports till the time US sanctions are there.

The Iran Energy Exchange revived on October 28 with a sale of 280,000 barrels of light crude and later, 700,000 on November 11. The crucial reason behind selling through IRENEX is that small batches of 35,000 barrels could be sold without the US being able to track it. After the withdrawal of US from the 2015 Iran nuclear deal and imposition of sanctions, Washington is closely keeping an eye on Iran’s oil exports.

Whether oil is sold through IRENEX or not, payment terms have been reduced, but there is no scope of offering discounts, said Saeid Khoshrou, director of international affairs of the National Iranian Oil Company.

“I don’t think he [US President Donald Trump] wanted $100 [a barrel] oil,” said BP CEO Robert Dudley.

As tallied by OPEC, 12% of GDP of Iran is represented by its oil sales. The fall in oil prices since the US sanctions were put in place, shows that Washington was quite lenient while granting six months waivers to eight countries that buy Iranian oil.

Trump raised a concern of rising gasoline prices if there’s a sudden cut in Iranian exports. His call for Saudi Arabia to boost production has helped in bringing out the inconclusive outcome of the early November meeting of oil producers in Abu Dhabi.

The European Union and Russia are willing to continue their trade. From several months, the EU has been discussing to establish a special purpose vehicle (SPV), which according to analysts might save 20% business.

“The SPV will have little effect on Iran’s overall economy, although it will help in some sectors, including food and medicines. It should have a political effect in protecting the JCPOA (Joint Comprehensive Plan of Action — the Iran nuclear deal) and may turn out to be significant in a long-term reduction of the use of the dollar in international trade,”said Sir Richard Dalton, British ambassador in Tehran 2003-07.

Russia’s plan to buy Iranian oil for domestic purposes and export more of its own oil to foreign markets will have greater effects on the economy. According to the US Energy Information Administration, Russian oil production could touch 12 mbpd during the second quarter of 2019, which is a rise from the already 11.2 mbpd.

However, shrinking of the Iranian economy cannot be stopped by this. The Economic Intelligence Unit in London predicted a contraction of 4.6% in the fiscal year ending March 2019 with a further reduction of 3.9% in 2019-20 (with global growth of 3% and 2.7%). The EIU estimates Iran’s oil exports to fall slightly more than 1 mbpd from a 2.6 mbpd in April.

The EIU also warned that relaxing fiscal management would limit unemployment to the present rate of approximately 13%. If the fiscal reins are loosened, it would bring a rise in inflation, which is expected to go from 17.8% in 2018-19 to 38% in 2019-20. Imports would become even more expensive as the Iranian Rial would go from 48,000 to the US dollar to 62,000 in 2018-19 and 66,000 in 2019-20.