US secondary sanctions to limit Iran’s oil and petroleum products exports went into effect Nov. 5. However, the threat of sanctions had already reduced the actual volume of exports in the past months to an extent that Iran’s crude oil and gas liquids exports had fallen from their peak of 2.7 million barrels per day (mbpd) in May to some 2.2 mbpd in October. While the United States has retreated from its original goal of reducing Iran’s oil exports to zero by issuing some waivers to countries importing Iranian oil, it is clear that Iran won’t manage to return to its peak level of exports as long as US sanctions remain in place.

In order to develop alternative channels for monetizing Iran’s oil, Iranian authorities have activated an old plan to market some of their export potential through the Iran Energy Exchange (IRENEX) which was established in 2012 as a regulated exchange for trading of energy-related products and securities. Up until last week, IRENEX had mainly been an exchange for the trading of petroleum and petrochemical products (not crude oil), gas liquids and electricity. The initial plan to market crude oil through IRENEX had emerged during the last phase of harsh external sanctions on Iran from 2011 to 2013, but it did not materialize due to the controversies related to such deals being a channel to offer rent to selected networks and a platform for corruption.

Nonetheless, after long debates, the National Iranian Oil Company (NIOC) offered on Oct. 28 its first consignment of crude oil on IRENEX. The actual utilization of IRENEX for trading in crude oil emerged after the government insisted that only private sector entities would be allowed as buyers. The question is whether this new channel will lead to a positive dynamism in terms of opportunities for the country’s private sector as well as its impact on increased oil exports out of the country.

When one looks at the prerequisites of the NIOC in engaging private sector buyers of its crude over IRENEX, it becomes clear that the list is a nonstarter. One key prerequisite is that the buyer either owns a refinery or has a direct contract with a refinery to process the oil. As current US sanctions target buyers of Iranian oil, how can one expect that some refineries would engage the country’s private sector as opposed to the NIOC itself? The only justifiable reason could be price, but it is more likely that the NIOC would itself offer a lower price to its direct buyers rather than go through the more complicated process of selling via the mentioned exchange.