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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Truth About Iran Oil Sanction Waivers

The Trump administration has dropped the hammer, officially putting sanctions on Iran’s oil exports. Why, then, might Iran’s oil exports actually increase in the near future?

The U.S. granted waivers to eight countries, allowing them to continue to import oil from Iran for a six-month period. Washington spun the waivers as a brief period of time that would allow a handful of countries to get their imports from Iran down to zero. Some countries really depend on Iran, so a six-month grace period would give them a bit more leeway.

The U.S. government was a bit defensive about the action. “No one’s going to argue that Secretary Pompeo isn’t tough on Iran,” Secretary of State Mike Pompeo said on “Fox News Sunday.” “And no one is going to argue that President Trump isn’t doing the same.” He cited the loss of around 1 million barrels per day of Iranian oil exports as evidence that the policy was working. “That number will fall farther.”

Yet the President himself revealed the logic behind the waivers. “We have the toughest sanctions ever imposed but on oil we want to go a little bit slower because I don't want to drive the oil prices in the world,” President Trump told reporters on Monday. “I could get the Iran oil down to zero immediately, but it would cause a shock to the market.” It’s highly debatable that the U.S. could have succeeded in slashing Iran’s oil exports to zero, but even if it did succeed, there is little doubt that oil prices would be substantially higher than they are today.

The eight countries granted waivers included South Korea, Taiwan, Turkey, Greece, Japan, China, India and Italy. Many of these countries had already made sharp reductions in their purchases of Iranian oil, which allowed them to curry favor with Washington as they sought some leniency on sanctions. Related: The Rapid Acceleration Towards Peak Oil Demand

Notably, however, South Korea and Japan had already zeroed out their imports from Iran well ahead of the deadline. The waivers for them, then, are a bit curious. The Trump administration may have wanted to reward allies that had been cooperative. However, it could also allow them to resume purchases of Iranian oil.

Japan’s trade minister, Hiroshige Seko, said on Tuesday that Japanese refiners could begin buying oil from Iran again, now that they have a six-month exemption. South Korea could also import around 130,000 bpd from Iran again, which is notable since South Korea hasn’t purchased oil from Iran since June, according to the IEA.

Some Chinese refiners who also cut their purchases are interested in buying oil once again, according to Reuters. China will be allowed to buy around 360,000 bpd, which is about half of what the country imported over the past two years. An unnamed trader told Reuters that “enquiries for cargoes from Iran are...coming in from several Asian buyers.”

Combined, the exemptions will allow Iran to continue to export oil, and it might even be able to increase exports from current levels. Iran exported somewhere around 1.6-1.7 million barrels per day in October, and according to S&P Global Platts, might export around 1.1 mb/d in November. But the losses could potentially stop there, and might even rise if some countries resume purchases.

It is “likely that Iranian oil exports will stabilise at their present level of a good 1 million barrels per day,” Commerzbank said in a note. “Exports could even increase again in the coming months because Japan and South Korea have hardly been buying any Iranian oil of late amid uncertainty ahead of the sanctions and as a gesture of goodwill towards the US.” The investment bank said the waivers and the potential increase in shipments to Asia is bad news for oil prices. Related: Bolton: U.S. Is Preparing More Sanctions Against Iran

There is quite a bit of disagreement over the trajectory of Iran’s exports. Citi’s Ed Morse told Bloomberg TV that oil prices are actually “biased to the upside” for the rest of the year. Morse said that oil prices could average $80 per barrel in the fourth quarter and might even spike to $90 or $100. He noted that whether or not such scenarios play out largely depend on Iran, as well as some other potential outage.

And while the market is suddenly bearish on oil because of Iran waivers, Morse notes that the waivers are only temporary and that the Trump administration won’t allow countries receiving waivers to import unlimited quantities. “How much oil is being granted from Iran to each of those eight countries? We can only surmise until we get a tweet from somebody in the government,” Morse told Bloomberg TV.

Other analysts agreed with that sentiment. “We do not see [the eight countries] having carte blanche to import what they like,” the consultancy FGE said in a note.

The bottom line is that there is not a lot of clarity regarding what to expect on Iran’s exports. The U.S. waivers could allow exports to stabilize and perhaps even edge up temporarily. However, the Trump administration is keen on tightening the screws. The waivers expire in May, and surely the U.S. wants Iran’s exports to be lower by then.

Nevertheless, Washington will only be able to move as fast as the oil market allows, which, after months of bluster, is something that the administration finally recognizes.

“We will ensure that as more barrels of Iranian crude and condensate come off the market, that we accomplish our national security objectives without increasing the price of oil,” Brian Hook, head of the State Department's Iran action group, told reporters on a conference call. “We have a high degree of confidence that we will be able to do both.” That’s the goal, but it remains to be seen if the oil market is loose enough to allow for that harder line on Iran.

By Nick Cunningham of Oilprice.com

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  • Brandon on November 07 2018 said:
    Would say political stability in Saudi Arabia is also a concern for oil prices. Non everyone in highest ranks of power is happy to serve as Middle-East satellite to the US administration and Saudi Arabia needs higher oil prices to constrain debt. The Khashoggi case is also not over yet. Many variables on the board...
  • Mamdouh G Salameh on November 07 2018 said:
    The truth about Iran oil sanction waivers is that it is a demonstration of ego satisfaction and self-delusion by the Trump administration.

    No matter how the Trump administration presents it, the issuing of sanction waivers to countries who don’t need them in the first place with the exception of South Korea and Japan and who would have continued to buy Iranian crude waivers or no waivers is an admission that the zero oil option is out of reach.

    So the threat by John Bolton of more sanctions on Iran is more of a bravado. Other than the already existing sanctions on Iranian crude exports, shipping industry and banking, what other sanctions could he be taking about.

    Granting sanction waivers to China, Russia and India is a textbook demonstration of ego satisfaction and also self-delusion by an indispensable superpower whose indispensability is eroding fast.

    Of course, it doesn’t help US ego that the whole sanction regime is at the mercy of China. China has the power to nullify US sanctions against Iran anytime by buying the entire Iranian crude oil exports estimated at 2.2 million barrels a day (mbd) and paying for them in petro-yuan. China will do exactly that if there was no breakthrough ending the trade war between them during the forthcoming meeting in November between President Trump and Chinese President Xi Jingping.

    Nor will it help that Russia’s oil minister said plainly that Russia will continue to buy Iranian crude and will also help Tehran sell it abroad. Furthermore, the United States’ closest ally, the European Union (EU) made it clear that it will not comply with US sanctions and is devising a mechanism for continuing trade with Iran and avoiding US sanctions.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • javid on November 07 2018 said:
    Anyway it's important to know that Iran economy has been collapsed many years ago and this is worse these days and goes to die. Who know it the only the people that live in Iran like me.
  • Mehrdad on November 16 2018 said:
    Next six months is critical for Trump policy against Iran.
    With the accelerated production of crude oil in US ,Then Iranian supreme leader Ali Khamenei and Rouhani should tighten their belts because it may happen soon.
    I mean US can zero iranian oil exports !
    Dramatic change in foreign policy needed in Iran , first of all Acknowlediging Israel goverment by Iran .
    Both of the countries are the members of UN , And ridiculous that want to destroy each other !

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