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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Iran: U.S. Has Failed To Stop Oil Exports

Iran’s president Hassan Rouhani said on Monday that the country will continue to export oil despite fresh U.S. sanctions, which he described as “psychological war doomed to failure.”

“We will not yield to this pressure which is part of the psychological war launched against Iran,” he said on state TV. “They have failed to stop our oil exports. We will keep exporting it ... Your regional policies have failed and you blame Iran for that failure from Afghanistan to Yemen and Syria,” he added, to chants of “Death to America!”. Rouhani also said that the U.S. lacked international support for its sanctions against Iran.

“America is isolated now. Iran is supported by many countries. Except for the Zionist regime (Israel) and some countries in the region, no other country backs America’s pressure on Iran,” he said.

Though Rouhani is right that other countries have not supported fresh U.S. sanctions against his country, he is also failing to address that EU support, strongest in the early days after President Trump announced impending sanctions in May, lost steam as Tehran demanded more than the EU, as either a body, or individually, could give. Iran also hurts its case with most EU members last month when Danish authorities accused Iranian agents of attempting to carry out a plot to assassinate an Iranian-Arab opposition figure on Danish soil.

"An Iranian intelligence agency has planned an assassination on Danish soil. This is completely unacceptable. In fact, the gravity of the matter is difficult to describe. That has been made crystal clear to the Iranian ambassador in Copenhagen today," Foreign Minister Anders Samuelsen, said in a statement at the time.

Iran hurts its own cause

Not only has the EU been mostly powerless to help Iran offset U.S. sanctions, but Rouhani’s rhetoric today is little more than chest beating, while also missing the obvious. The main reason that Iran is still exporting much of its oil is attributed to the U.S. allowing eight importers a waiver for importing Iranian crude to allow global oil markets a so-called adjustment period. Related: Russia’s Most Powerful Oilman: We're Fine With Any Oil Price

However, given the ongoing trade war between Washington and Beijing which is also hurting economic growth not only in China but worldwide, especially in emerging markets, and with the U.S. opening up its oil production spigots, markets aren’t in dire need any more for Iranian barrels that will be lost due to sanctions.

The U.S. is now pumping an unprecedented 11.6 million barrel per day (bpd) of oil, with that number projected to increase going forward, a spike of 2 million bpd from the same period last year, and 400,000 barrels from the week earlier, based on weekly U.S. government data. Meanwhile, the U.S. Energy Information Administration (EIA) projects that US production could grow to 12.1 million bpd on average next year.

Russian oil production is also spiking, much to the dismal of OPEC and Saudi energy planners who have watched oil market mastery continue to slip out of their hands with renewed power from both US and Russian producers. In October, Russia produced 11.4 million bod, a post-Soviet high.

However, Saudi Arabian production, the third part of a new oil production trinity, has also recently increased. In October, the kingdom said its oil production hit a record 10.7 million bpd in order to offset the loss of Iranian barrels.

It now appears that a Saudi-lead OPEC will try to push for oil production cuts of between 1 million to 1.4 million bpd to reign in an approaching over supply scenario with a likely corresponding drop in prices.

Russia waffles over output deal

However, there also signs that Moscow this time around may not be interested in another OPEC/non-OPEC production cut similar to the one orchestrated in early 2017 to drain down

Related: Can We Expect A Major Rebound In Oil Prices?

then high oil inventory levels, and to resuscitate prices that dropped from over $100 per barrel in mid-2014 to under $30 per barrel in January 2016.

On Thursday, Reuters, citing inside sources, said that for now Russia wants to stay out of any oil-production cuts being touted by some of its partners in an OPEC-led supply pact. Adding more uncertainty over Russia’s direction, on Monday Russian Energy Minister Alexander Novak said that Russia, which is not an OPEC member, planned to sign a partnership agreement with the group, and that details would be discussed at OPEC's December 6 meeting in Vienna.

Yet, even if OPEC and Russia trim production around 1 million bpd collectively, it might still not be enough to drain down global supplies for long if U.S. production spikes to 12.1 million bpd on average next year and demand growth for oil going forward, especially in emerging markets hurt by exorbitant oil prices and a robust U.S. dollar which increase oil prices, persist - coming full circle to Rouhani’s assertion that U.S. sanctions are “doomed to failure.” On the contrary, sanctions have already put Iran's economy in a tail spin, and largely devalued its currency, something that the U.S. designed long ago when it decided to reimpose sanctions. Moreover, global oil markets will also be able to survive, even thrive, with the loss of Iranian barrels due to those vary sanctions.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on November 19 2018 said:
    You articles are gaining a reputation of being full of errors and inaccuracies. You seem to let your political leanings overcome your analysis and you always fail to support your claims with hard evidence.

    You claim that US sanctions have already put Iran's economy in a tail spin, and largely devalued its currency. You also claim that the main reason that Iran is still exporting much of its oil is attributed to the US allowing eight importers a waiver for importing Iranian crude to allow global oil markets a so-called adjustment period.

    US sanctions have so far failed to cost Iranian oil exports a loss of even one barrel. Furthermore, the issuing of sanction waivers to eight countries who didn’t need them in the first place and who would have continued to buy Iranian crude with or without the waivers is the clearest admission by the Trump administration that their zero option is out of reach and that sanctions are doomed to fail. Moreover, the eight recipients of the waivers have neither increased nor decreased their purchases of Iranian crude as a result of the waivers.
    Furthermore, the devaluation of the Iranian currency happened a long time before the US sanctions were imposed and it was due to mismanagement by the Iranian Central bank for failing to provide enough hard currency to satisfy domestic demand.

    What you don’t seem to understand that the whole US sanction regime is at the mercy of China and the petro-yuan. China could singlehandedly nullify US sanctions by buying the entire Iranian crude oil exports estimated at 2.2 million barrels a day (mbd) and paying for them in petro-yuan. For the time being, China is slowly increasing its purchases of Iranian crude. But if no breakthrough is achieved over the escalating US trade war against it during the coming meeting this month between President Trump and the Chinese leader, you can be sure that China will just do exactly that in retaliation against the US.

    You also claim that the European Union (EU) been mostly powerless to help Iran offset US sanctions. While there has been a slight delay in finalizing the so-called Special Purpose Vehicle (SPV) (or barter trade), the EU is steadfast in not complying with the sanctions and will challenge the United States to retaliate against them. You may remember how Angela Merkel defied President Trump’s threat of sanctions against Germany if she doesn’t abandon the Nord Stream 2 gas pipeline. The EU has no alternative but to support the nuclear deal and therefore continue to trade with Iran. The alternative is a collapse of the nuclear deal and a return of Iran to full nuclear activities which could lead to war between the US and Iran supported by the likes of Israel and Saudi Arabia.

    I never believed for a minute claims by the US Energy Information Administration (EIA) about the rise of US oil output to 11.6 mbd. The EIA’s weekly figures are almost 1 mbd higher than the monthly figures. So production figures could have been estimated at 10.6 mbd if any. Still, my estimate of US oil production is no more than 9.9 mbd made up of 5.59 mbd of shale oil and 4.31 mbd of conventional oil. Furthermore, US domestic consumption is just over 20 mbd and its imports amount to 10 mbd meaning that US shale oil production could not be higher than 10 mbd. Even MIT in its latest report accused the EIA of exaggerating US oil production significantly to put a gloss on a US shale oil industry heavily burdened with hundreds of billions of dollars debts.

    You and other contributors to the oilprice.com continue to extol the impact of US oil production on the global oil market and prices. If that is the case, then why does President Trump keep haranguing OPEC to raise production to keep prices down. Why doesn’t he instead flood the global oil market with US oil? It points to one thing: EIA’s claims are plain untruths.

    Based on market realities, Iranian President Rouhani is right to claim that US sanctions have failed to stop Iranian oil exports and that America is isolated because the overwhelming majority of the nations of the world are opposed to US sanction in general and the ones on Iran in particular.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • The masked avenger on November 20 2018 said:
    More hot air from the oil economist.

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