Will The U.S. Compromise On Iran Oil Sanctions?

Some of the United States’ closest allies are scrambling to find a way around the latest sanctions of the Trump Administration against Tehran, and Washington may have to revise its goal of reducing Iranian oil exports to zero.

Bloomberg recently reported, citing unnamed sources in the know, that Japan, for one, might have to stop loading Iranian crude in September unless it manages to score a waiver with the State Department.

South Korea earlier denied reports that it will stop buying Iranian crude from July, but now there are more reports, saying that the country, one of the world’s top oil importers, is having problems with tanker insurance as some of the largest maritime insurers refuse to touch Iranian vessels under the shadow of sanctions.

India is yet another case in point. The world’s fastest-growing economy has been importing Iranian crude at an average daily rate of 588,000 bpd since the start of the year. This makes it Iran’s second-largest client after China, and the nation that is struggling most as the sanctions start date approaches.

The problem is not exclusively related to commodities, however. Iran’s oil clients have also been actively working to improve bilateral relations after the inking of the nuclear deal. “Japanese companies were beginning to look toward Iran as an attractive investment destination,” a senior economist from Japan Research Institute Ltd. told the Japan Times recently.

Japan is by no means the only oil-hungry country looking for new investment opportunities in Iran. India has also been planning substantial investments in Iran, and just yesterday Iran criticized New Delhi for failing to make good on a promise to finance the expansion of a strategic port. The deputy ambassador of Tehran in India warned the country that Iran will strip it of its “special privileges” if it stops buying Iranian crude. Related: Spare Capacity: The Biggest Mystery In Oil Markets

For Japan, South Korea, and India the problem of oil supplies is actually one of balancing interests. “We are in a knotty situation as we have to listen to the U.S., but at the same time Iran is an important supplier of crude and condensate,” a research fellow from the Korea Energy Economics Institute told Bloomberg. “It’s the Trump administration that we are dealing with, and that unpredictability is stoking concern among refiners and petrochemical companies in Asia, making them voluntarily cut their shipments from Iran before the deadline.”

It seems some of this frustration has gotten through to Washington. Secretary of State Mike Pompeo yesterday said that “There will be a handful of countries that come to the United States and ask for relief from that. We’ll consider it.”

Pompeo did not name any countries, but the statement is significant enough: perhaps Washington is ready to accept something milder than an export reduction to zero to maintain its relationships with key Asian allies. Or maybe it has become evident even for the Trump administration that the insistence on an oil export reduction to zero has only served to stoke the oil price rally at a time when Republicans are preparing for midterm elections in November and prices at the pump are in the spotlight for voters.

By Irina Slav for Oilprice.com

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