• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 48 mins Iran Is Winning Big In The Middle East
  • 6 hours Trump cancels Denmark visit amid spat over sale of Greenland
  • 7 hours Strong, the Strongest: Audi To Join Mercedes, BMW Development Alliance
  • 9 hours Nor Chicago, nor Detroit: Killings By Police Divide Rio De Janeiro Weary Of Crime
  • 2 mins Not The Onion: Vivienne Westwood Says Greta Thunberg Should Run the World
  • 5 hours US to Drown the World in Oil
  • 1 day Danish Royal Palace ‘Surprised’ By Trump Canceling Trip
  • 10 hours With Global Warming Greenland is Prime Real Estate
  • 1 hour OPEC will consider all options. What options do they have ?
  • 8 hours Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 1 day A legitimate Request: France Wants Progress In Ukraine Before Russia Returns To G7
  • 1 day What to tell my students
  • 4 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
Alt Text

Alberta Extends Oil Production Cuts

Alberta has announced an extension…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Premium Content

Iranian Oil Production Could Be About To Plunge

The European Union has vowed to maintain the Iran nuclear deal despite the U.S. decision to exit, and Brussels has pushed back against Washington’s attempts to penalize European companies from doing business with Iran. However, the early evidence suggests that the EU is struggling to keep the deal alive, as European companies have already begun cutting business ties with the Islamic Republic.

It has only been a few weeks since the Trump administration announced its withdrawal from the Iran nuclear deal, and we are still several months away from the deadline for when sanctions begin to bite. However, the U.S. Treasury has advised businesses to begin unwinding their business in Iran immediately, and there are more than a few examples that suggest international companies are heeding that advice (or threat).

According to the Wall Street Journal, a series of American companies that had been doing business with Iran under a technical loophole are now ending their ties, a list that includes Honeywell International Inc., Dover Corp. and General Electric. The announcement from GE was one of the more notable decisions, since the U.S. conglomerate was selling oil and natural gas equipment to Iran. GE’s foreign subsidiaries had plans for as much as $150 million worth of business, but is now pulling the plug entirely. Meanwhile, airplane manufacturer Boeing is set to miss out on some $20 billion in sales to Iran.

The WSJ says an estimated 17 American companies began commercial activity with Iran after the nuclear deal went into effect in early 2016. Related: Venezuela’s Oil Meltdown Defies Belief

Still, the exit of European firms is even more significant, not least because European firms had larger plans for Iran than their American counterparts following the signing of the nuclear deal. Total SA is at the top of the list. The French oil giant had a $1 billion deal to develop the latest phase of the South Pars natural gas field, a project it ran with China’s CNPC. Total was the only major western oil company to ink a deal with Iran since the lifting of sanctions more than two years ago. Total is going to hand off its stake in the gas project to CNPC and pull out of Iran.

While the cancellation of promised investment in Iran is painful, a more significant impact will be how U.S. sanctions affect oil production and exports. Already, there are signs that here, too, the Trump administration is having an impact.

The shipping giant A.P. Moller-Maersk said it would no longer ship Iranian oil on its fleet. “With the sanctions the Americans are to impose, you can’t do business in Iran if you also have business in the U.S., and we have that on a large scale,” Maersk CEO Soren Skou said in a statement in May.

One of the more surprising announcements came from Reliance Industries, an Indian oil and gas company, which said it would no longer import Iranian oil. India is a large growth market for oil and also a crucial market for Iran.

European refiners are also winding down purchases of Iranian crude, despite assurances of support from the European Union. As insurance, shipping and financial giants cut ties with Iran, buying oil is becoming more and more difficult. “We cannot defy the United States,” a senior source at Italy’s Saras, which operates a 300,000-bpd refinery in Sardinia, told Reuters. “It is not clear yet what the U.S. administration can do but in practice we can get into trouble.” Related: China Deals Shocking Blow To Solar Industry

Sources told Reuters that Total, Eni, Spain’s Repsol and Cepsa, and Greece’s Hellenic Petroleum are all reducing or ceasing oil purchases from Iran. As Reuters notes, these companies account for most of Europe’s refining capacity.

The exodus of international business is leading to rising frustration in Iran. This week, Iran said that it would ramp up work on its nuclear program if the EU is unable to offer enough security to ensure European companies can continue to operate in Iran. To be sure, Iran’s nuclear plans would remain within the limits of the international accord, but the comments are a signal that the Islamic Republic might ultimately lose patience with the constraints of the nuclear deal now that the benefits are rapidly evaporating.

The estimates for how much Iranian oil U.S. sanctions will impact ranges, perhaps as little as a few hundred thousand barrels per day, or maybe as much as 1 million barrels per day. At first blush, the vow from the EU to continue with the nuclear deal immediately after President Trump announced his withdrawal seemed to offer reassurance that any disruptions would be minimal.

But the mass flight of top American and European companies, and the early signs of a significant decline in purchases from refiners around the world, plus the difficulty in finding shipping and insurance, all suggests that the supply disruptions could potentially be at the higher end.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play