Midnight on Sunday will mark a dividing line in the world of oil. Beyond that point, anyone unloading a tanker from Iran risks the full wrath of the US government. While the US softened its crackdown on the Middle East’s third-biggest oil producer on Friday, allowing some trade to continue, exports are already slumping. Shipments have plunged 37 per cent since President Donald Trump announced that he’d reimpose sanctions, and once those penalties kick in on November 5, the overall supply disruption could become the biggest since Libya, erupted in civil war at the start of the decade.
“Iran’s oil exports are falling rapidly, and perhaps more and more in the weeks to come,”
Fatih Birol, executive director at the International Energy Agency, said in a Bloomberg television interview. The US will grant partial exemptions, known as waivers, to eight governments on condition that any purchases from Iran are at “greatly reduced levels,” Secretary of State Michael Pompeo said on Friday. But the Trump administration ultimately seeks to squeeze Iran’s sales towards “zero” — potentially leaving a gap that even major producers like Saudi Arabia would struggle to fill. US oil futures climbed to a four-year high near $77 a barrel last month on growing concerns there could be a shortage as sanctions bite deeper. Prices have since eased, aided by the US decision to allow waivers for India, Japan, South Korea and others. Nov. 4 will mark a dividing line in the world of oil. Beyond that point, anyone unloading a tanker from Iran risks the full wrath of the U.S. government. There are signs the impact will be mitigated, as some buyers win partial exemptions while other producers, particularly Saudi Arabia pump more to fill the gap.
Nonetheless, significant risks remain. Analysts don’t expect a complete halt, but there’s a growing consensus that Trump’s tough stance means crude exports will plunge further than during a previous round of sanctions under Barack Obama’s administration in 2012. Back then they were sliced in half to 1 million barrels a day, according to the IEA, which advises industrialized countries on energy policy. This time, 1.1 million barrels a day have already been cut from Iran’s shipments — a combination of crude and a light oil called condensate that was spared from curbs in 2012 — according to data compiled by Bloomberg. Production hasn’t fallen as much as some output is going into storage.
About 1.76 million barrels a day were exported in October, more than is pumped from the North Sea. “A large part of the impact has not happened yet,” said Mike Wittner, head of oil-market research at Societe Generale SA. “Price-wise, there’s still some upward pressure to come — possibly a big wave of upward pressure. Things are going to tighten up.” U.S. oil futures climbed to a four-year high near $77/bbl last month on growing concerns there could be a shortage as sanctions bite deeper. A senior administration official said this week that the U.S. has agreed to let eight countries, including Japan, India and South Korea — keep buying Iranian oil, but only temporarily. The impact of the sanctions has already been cushioned by other oil producers, notably some of Iran’s counterparts in the Organization of Petroleum Exporting Countries.
The US government has announced that it will grant temporary waivers to eight “jurisdictions”, allowing them to buy Iranian oil beyond November 5, when the second round of sanctions on the Islamic Republic takes effect. Mike Pompeo, the US secretary of state, said on Friday the exceptions would allow the unnamed countries to import Iran’s oil at “greatly reduced levels”, with the ultimate goal of “zero” purchase from Tehran. “These concessions are critical to ensure that we increase our maximum pressure campaign and accelerate towards zero,” Pompeo said in a conference call with reporters. The second round of sanctions set to kick in on Monday follows a 90-day period since Washington reimposed the first wave of measures against Iran in the wake of President Donald Trump’s controversial decision in May to unilaterally withdraw the US from a landmark 2015 multinational nuclear deal. Washington’s upcoming move is expected to have a greater impact, as it will target Tehran’s main source of export revenue: oil and gas. In his comments to the media, Pompeo said that Iranian crude oil exports have already been reduced by more than one million barrels. Iran analysts, however, said the announcement on waivers points to US President Donald Trump’s inability to rally the international community and reach a consensus against Tehran.
“The Trump administration is waking up to the fact that its Iran policy has strained ties with a wide range of countries,”
Esfandyar Batmanghelidj, founder of the Iranian economy website Bourse Bazaar, told Al Jazeera. “Showing flexibility on oil imports may be a way for the US to seek more cooperation on sanctions in other areas.” In Tehran, the decision on waivers is seen as “a victory”, as it was able to sustain its energy exports “after months of US threats that oil sales would be pushed down to zero”. Pompeo did not identify the countries to be granted the waivers. But according to numerous reports, these include India, South Korea and Turkey. India and South Korea are the second and third biggest buyers of Iranian oil. Turkish Energy Minister Fatih Donmez also confirmed that his country would be granted a waiver, according to the Reuters news agency. In 2017, Turkey imported 16.7 percent of its gas consumption from Iran.