In 2018, global demand for oil is expected to reach about 100 million barrels a day. At an average price per barrel of $75, the total value of the global oil market is around $2.7 trillion.
But as much as $133 billion (nearly 5% of the total) is being lost to thieves and smugglers, and as the price goes up, so does the number of thieves and smugglers.
Smuggling oil and refined fuel products happens in many ways. Manipulating the paperwork tracking legal shipments so that more fuel is reported than is actually being transported allows thieves — almost always shipping insiders — to sell the excess and keep the money.
There’s also old-fashioned piracy and ship-to-ship transfers of crude oil or fuel out on the open sea where it is hard to find. The stolen oil and fuel is then sent off to the black market where it reaps a massive profit.
Now that the United States is withdrawing from the nuclear deal with Iran, there is at least some concern that Iran will dodge new sanctions by selling its oil on the black market. The country’s official currency exchange rate is 42,000 rials to the dollar, but the black market exchange rage already has reached 66,000 following the U.S. announcement.
While any U.S. sanctions won’t be imposed for several months, there is little doubt that restrictions on oil exports will have the most severe effect on Iran’s economy. The country can’t afford to just sit back and take its punishment, it needs to sell its oil in order to keep the country afloat.
To help that effort, the Iran Revolutionary Guard Corps, which has developed as a strong force in the country’s oil and gas sector, may revert to selling oil on the black market as it was once said to do prior to the lifting of sanctions against the country.
A lot will depend on how many legitimate buyers of Iranian oil seek and receive U.S. waivers from the sanctions. That will determine the size of the shortfall in demand for Iranian oil and estimates of the impact have run anywhere from around 200,000 barrels a day to around a million barrels a day out of current production of about 3.4 million barrels a day. The more barrels taken off the legal market, the more that will be available to the black market.