The current easing of the short-term concerns about oil supply could only be temporary, because the return of the U.S. sanctions on Iran—possibly coupled with production problems elsewhere—could make maintaining global supply “very challenging,” the International Energy Agency (IEA) said in its Oil Market Report on Friday.
“The recent cooling down of the market, with short term supply tensions easing, currently lower prices, and lower demand growth might not last,” said the IEA, noting that at the time the next monthly OMR is out in mid-September, we will be just six weeks away from the return of the U.S. sanctions on Iran’s oil exports.
The U.S. Administration is looking to have Iranian oil exports down to ‘zero’ and is trying to persuade as many of Tehran’s oil customers as possible to cut off their supplies from Iran.
While analysts expect that Europe could be convinced, China has already refused to acknowledge the U.S. sanctions on Iran and has said that it would not stop buying Iranian crude oil.
“As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion. Thus, the market outlook could be far less calm at that point than it is today,” the IEA said.
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The Paris-based agency lifted its 2019 oil demand growth forecast slightly up for next year, by 110,000 bpd to 1.5 million bpd, “but there are risks to the forecast from escalating trade disputes and rising prices if supply is constrained.”
“The risks to stable supply that will grow later this year could cause higher prices and thus impact demand growth. Another factor to consider is that trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand,” the IEA said.
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By Tsvetana Paraskova for Oilprice.com
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However, the IEA will be proven wrong like the many experts and analysts who have been falsely projecting a loss of between 500,000 barrels a day (b/d) to 1 million barrels a day (mbd) of Iran’s oil exports as a result of the sanctions.
May be I am the only expert who has consistently been saying that US sanctions against Iran are doomed to fail and that Iran will not lose a single barrel of its oil exports.
My reasoning is based on three assumptions. The first is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude are against the principle of sanctions on Iran as unfair and will not therefore comply with them and will continue to buy Iranian crude whether in violation of the sanctions or by a US waiver as would be the case with Japan, South Korea and Taiwan.
The second is the petro-yuan which has virtually nullified the effectiveness of US sanctions and provided an alternative way to bypass the sanctions and petrodollar.
A third assumption is that China which is being subjected to heavy US tariffs and Russia which has been battling US sanctions since 2014 are very minded to ensure the failure of US sanctions against Iran as a sort of retaliation against US tariffs and sanctions against them.
The US would be making a huge mistake were it to underestimate the power of the Russian-Chinese strategic partnership which has led to the successful launching of China’s crude oil future contract (the petro-yuan).
The US Administration’s expectation that it will be able to persuade Iran’s oil customers to cut their crude imports from Tehran by as much as 1 mbd is more of self-delusion and wishful thinking coming from an administration that has antagonized virtually everybody including its own close allies.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London