The U.S. government is planning on taking a tougher line on Iran in the months ahead, redoubling its efforts to cut Iran’s oil exports down to zero.
Brian Hook, the State Department’s special representative for Iran, boasted earlier this week about the U.S.’ success in curtailing Iran’s oil exports to date. In an interview with Bloomberg, Hook noted that when the Trump administration withdrew from the Iran nuclear deal last May, Iran was exporting 2.7 million barrels per day (mb/d). Now, he says, Iran’s exports are down near or below 1 mb/d.
“In fact, in those first six months, we took off roughly a million barrels of oil. We did that without increasing the price of oil,” Hook told Bloomberg in an interview.
“There’s a lot more to come. We are going to continue our path to get to zero,” Hook said, referring to the administration’s goal of zeroing out Iran’s oil exports. However, when pressed on when that might happen, Hook demurred, telling Bloomberg that the campaign to zero also needs to be balanced against U.S. national security and economic interests.
There’s the rub. Cutting Iran’s oil exports to zero was always going to be tricky because it would likely contribute to significant increase in oil prices. In fact, the U.S. decided in November to issue sanctions waivers to eight countries importing oil from Iran precisely because it was worried about the effect on oil prices.
This time around, to be sure, there is a lot more room for the Trump administration to maneuver. The oil market entered into a state of surplus in the fourth quarter, a development that stemmed from the ramp up of supply from OPEC countries in anticipation of major outages from Iran. The surplus could allow the U.S. to take a harder line, tightening the screws on Iran further.
“We are not looking to grant any new waivers. That’s been our policy from the beginning,” Hook said. “We are not looking to grant any exceptions to our campaign of maximum economic pressure.” He conceded that such an effort to be stingier with waivers is contingent upon oil prices. The U.S. granted six-month waivers to Japan, South Korea, India, China, Taiwan, Turkey, Italy and Greece. They expire in May. Related: Middle East Gas Game Accelerates As ENI Wins Concessions
Iran’s oil minister Bijan Zanganeh said the sanctions are “fully illegal” at a news conference in Iraq on January 10. “We believe that we should not comply with the illegal sanctions against Iran,” Zanganeh said.
The problem for the U.S. is that it still hasn’t figure out a way to reconcile the twin goals of low oil prices and zero exports from Iran. The same puzzle that bedeviled American officials last fall remains. Even though the oil market is well-supplied now, that could change in the months ahead.
Saudi Arabia, having felt a little burned by the Trump administration in November, helped engineer another round of OPEC+ cuts in December. Saudi Arabia alone will cut output by around 800,000 bpd from October levels, taking production basically back to where it was before the U.S. asked it to increase supply to offset losses from Iran.
In other words, the recent oil supply glut seemingly gives the U.S. government more leeway to take a harsher line on Iran, but OPEC+ is already cutting output, which will take away some of that leeway.
To make matters more complex, the U.S. government has sent very mixed signals about its approach to the Middle East. A few weeks ago President Trump announced a withdrawal of U.S. troops from Syria, and has expressed a desire to reduce American commitments to the region. That was followed by a damage control tour of the Middle East by Secretary of State Mike Pompeo and Trump’s national security adviser John Bolton, both of which sought to dial back Trump’s stated goal of troop withdrawal. Related: Fears Of U.S. Shale Demise May Be Overblown
Meanwhile, the New York Times reported that Bolton has been itching for a reason to go to war with Iran, and that his request to draw up military options against Iran has raised concerns within the Pentagon.
As for oil, there are also mixed messages. Trump’s personal desire seems to be low oil prices at all costs. But Bolton, along with Mike Pompeo and Brian Hook, all want to ratchet up the pressure on Iran.
How this shakes out remains to be seen, but the hawks might feel constrained if the oil market continues to tighten. Oil prices are up more than 20 percent from their December lows, but are still rather low. If oil remains at current price levels, the hawks in the Trump administration could have room to maneuver.
But if the OPEC+ cuts begin to drain the surplus, and oil prices steadily rise over the next four to five months, the Trump administration may be back to where it was in October – feeling a little too skittish about cutting Iran’s oil exports to zero because of fears over driving oil prices too high.
By Nick Cunningham of Oilprice.com
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