Bargain Prices Triggered Flood of Iran Oil Exports to U.S., Experts Say

The big July jump in Iranian crude oil exports to the United States was triggered by American oil buyers rushing to exploit deep discounts on Iran’s oil, but imports from Iran have since begun to decline, oil experts and the U.S. government said Wednesday.

Nonetheless, the amount of Iranian oil entering this country remains at levels not seen in several years, according to Energy Department estimates. For the moment, the regime of the Ayatollah Khomeini continues as one of the leading foreign suppliers of oil to U.S. markets.

The news that Iran had leaped to the No. 2 spot among suppliers of U.S. petroleum in July, displacing such allies as Canada, Venezuela and Mexico, prompted the Senate to vote 98-0 on Tuesday to recommend a trade embargo on Iran. The French have already taken similar action.

The Commerce Department said Iran sent 620,000 barrels of oil per day to this country in July, trailing only Nigeria. So far this year, the United States has paid $810 million for oil from Iran--enough to buy about 25 advanced fighter planes for Iran’s war machine.

But an embargo, if approved, would have only a symbolic effect because other nations would buy Iran’s oil, according to analysts and energy economists, and U.S. buyers would turn to other sources of oil.

Despite the politics and emotion that attach to Americans buying Iranian gasoline for their automobiles, petroleum is traded indiscriminately around the world. The only factors important to buyers of crude are its price and physical characteristics, such as viscosity.

“I wish people wouldn’t pay attention to where the oil comes from,” says William D. Hermann, the chief economist at Chevron, the nation’s fourth-largest oil company.

The big jump in July was explained by economists as one result of the extreme overproduction by Iran and other members of the Organization of Petroleum Exporting Countries last summer.

The excess crude, plus Iran’s need to slash prices below the official OPEC price to attract customers who would otherwise prefer a more stable source of oil, added up to bargain deals that American customers apparently acted on before buyers from Europe or Japan.

“It must have been a helluva price,” an Energy Department official said.

While OPEC members were holding to official cartel prices averaging $18 per barrel and Iran was discounting below that level, fears of military disruptions in the Persian Gulf drove spot prices in Europe and the United States as high as $22 during the same midsummer period.

“Iranian prices were a steal, maybe $17 a barrel,” said Bijan Mossavar-Rohmani, an Iranian who is assistant director of the Energy and Environmental Policy Center at Harvard. “Some smart trader could get that oil to the Gulf (of Mexico) for another $1.50 (a barrel) and then sell it for $21 or $22.”

The stepped-up movement of Iran’s oil to U.S. ports was presumably made easier by the presence of U.S. warships patrolling the Persian Gulf. While the movement of Kuwaiti oil tankers was the reason for the U.S. presence, Iran itself has benefited from a safer gulf for shipping its oil.

Meanwhile, overall crude oil imports to this country climbed sharply in July as customers stockpiled for the cold weather and in anticipation of possible cutoffs of shipments from the Middle East. Iran and Nigeria captured the lion’s share of the overall increase.

The Commerce Department won’t identify which companies are importing which products unless it is being done illegally. The purchase of oil and such products as carpets and pistachios from Iran has been permitted ever since Tehran’s release of the American hostages in 1981.

However, it appeared that Amerada Hess Corp. sharply stepped up its purchases of crude from Iran in July. Amerada Hess owns and operates the only refinery in the Virgin Islands, which the Energy Department said was the source of 366,000 barrels of Iranian oil per day entering this country in July. The rest of the 620,000 barrels per day during the month entered U.S. ports directly as crude oil.

In June, Iranian oil exports to the United States totaled 420,000 barrels a day, including 268,000 through the Virgin Islands, the department said. But the levels earlier in the year were far lower, adding up to an average total of 250,000 barrels a day from January through July.

Iran’s No. 2 ranking in July is the first time since the late 1970s, before the Iranian revolution, that Iran has been such a key supplier to the United States. In the first five months of this year, Iran was the No. 13 importer.

The Energy Department said that as the price advantage enjoyed by Iran’s oil has diminished since July, Iranian exports to the United States have slipped to an average of about 400,000 barrels a day in August and September and the totals continue to drop.