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U.S. Sees Sanctions Taking 1 Million Bpd Iranian Oil Off The Market

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The U.S. Administration expects that it will be able to persuade Iran’s oil customers to cut their crude imports from Tehran by as much as 1 million bpd, Bloomberg reports, citing two people familiar with the Trump Administration’s efforts to cut off Iranian oil supply.

The forecast 1-million-bpd reduction would be equal to roughly half of the average Iranian oil exports over the past year, but well below the U.S. target of reducing the Islamic Republic’s oil sales to ‘zero’. Nevertheless, 1 million bpd of global oil supply choked off in early November would boost oil prices, analysts say.

According to data compiled by Bloomberg, Iran’s oil exports have averaged 2.1 million bpd over the past year.

Most analysts have estimated that the return of the U.S. sanctions would cut Iranian exports by between 500,000 bpd and 1 million bpd. In view of the persistent efforts of the United States to have as many countries as possible on board with halting Iranian oil imports, however, some of them now expect the figure to be closer to 1 million bpd than to 500,000 bpd.

Bank of America Merrill Lynch sees oil prices hitting $90 a barrel by the second quarter of 2019 as Iranian oil barrels are removed from the market and other supply disruption risks threaten the tightening oil market.

Related: Canadian Oil Crisis Continues As Prices Plunge

According to Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, the U.S. sanctions on Iran are “incredibly coercive,” and more than 1 million bpd of Iranian oil would be taken out of the market. The question regarding Iranian oil supply now is, can the Trump Administration get everybody else except China, which has already said it won’t recognize U.S. sanctions on Iran, out of the market, according Croft.

The United States hasn’t been able to persuade China—Iran’s biggest oil customer—to reduce Iranian oil purchases, but Beijing has reportedly agreed not to increase its oil imports from Iran.

The U.S. can get Europe out of the market, and India—Iran’s second-largest oil customer after China—will likely reduce Iranian purchases even if it doesn’t get entirely out the market, Croft told CNBC last week.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on August 10 2018 said:
    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 million barrels a day (mbd) is more of self-delusion and wishful thinking coming from an administration that has antagonized virtually everybody including its own close allies.

    US sanctions against Iran are doomed to fail and Iran is not going to lose a single barrel of its oil exports for two reasons.

    The first is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude are against the sanctions on Iran 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.

    Moreover, China which is being subjected to heavy US tariffs and Russia which has been battling US sanctions since 2014 are both very minded to ensure the failure of US sanctions against Iran as a sort of retaliation against the US.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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