Washington has granted eight Iranian oil importers waivers from the sanctions that enter into effect next Monday, among them Japan, South Korea, and India, a government official told Bloomberg. Another two sources told Bloomberg China was also on the list but discussions with the U.S. were still ongoing.
The waivers are temporary, the source also said, with Washington expecting the countries on the list will gradually reduce their imports of Iranian crude, the ultimate goal still being cutting to zero the country’s exports to stifle its main source of revenue. However, S&P Global Platts yesterday quoted the chairman of India’s largest oil company, the Indian Oil Corporation, as saying cutting imports to zero was unrealistic and it would harm the market.
Iran has been making the same argument ever since President Trump announced the sanctions. Besides threats to close off the Strait of Hormuz, Tehran said there is simply not enough spare capacity in the world to make up for lost Iranian supply, which would mean price spikes that would not be to the liking of Washington or its allies whose energy industries need more oil than they can produce themselves. Related: U.S. And OPEC Flood Oil Market Ahead Of Midterms
The list with the countries selected for waivers will be announced officially on Monday, the day when the sanctions snap back. In addition, Washington has asked its partners to reduce trade in other goods, not covered by the sanctions, with Iran to maximize the pressure.
Iran, meanwhile, is preparing. Earlier this week media reported that President Rouhani had replaced the economic team of the government and that four cargoes of crude were sold on the Iranian energy exchange. The amount is not great at less than 300,000 bpd, but it could be the start of something regular. At the same time, Tehran is seeking ways to strengthen its relationship with partners including China, India, and the European Union.
By Irina Slav for Oilprice.com
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Iran’s oil exports have averaged 2.2 million barrels a day (mbd) so far this year. 95% of exports have gone to China (35% or 770,000 b/d), India (33% or 726,000 b/d), the EU (20% or 440,000 b/d) and Turkey (7% or 154,000 b/d). The remaining 5% went to South Korea and Japan (110,000 b/d).
By issuing sanction waivers to India, South Korea and Japan, they are expected to reduce their purchases of Iranian crude by 20% or a total of 167,200 b/d combined. The EU is going ahead with its purchases of Iranian crude having already declared that it will not comply with US sanctions and having established a mechanism to bypass the sanctions. Turkey also announced that it will continue to buy Iranian crude.
China as the world’s largest economy and a superpower in its own right doesn’t need a sanction waiver to buy Iranian crude. China has been increasing its purchases of Iranian crude significantly and will continue to do exactly that partly because it is getting a good deal from Iran like India and partly as a retaliation against the US escalating trade war against it.
Moreover, China could singlehandedly nullify US sanctions altogether by importing the total Iranian oil exports amounting to 2.2 mbd and paying for them in petro-yuan. China will be more than happy to oblige particularly if the coming meeting between President Trump and Chinese President Xi Jingping in early November fails to produce a breakthrough ending the escalating trade war between them.
With India, it is always advisable to judge it by what it does and not by what it says. Judging by the rising cost of its oil import bill and the discounted crude Iran is offering, it will continue to import its needs of Iranian oil waiver or no waiver.
So the loss of a minuscule volume of 22,000 b/d from South Korea’s and Japan’s purchases of Iranian crude will be more than offset by increases in India’s and China’s purchases.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London