With nearly 50 days to go
before new U.S. oil sanctions against Iran enter into force, President Donald
Trump has already managed to crush the country’s petroleum exports, dealing
severe economic damage to Tehran.
Iranian oil exports have plunged about 35 percent since April,
the month before Trump ripped up the diplomatic deal that Barack Obama
negotiated to curtail Tehran’s nuclear program and announced new oil sanctions.
“Iranian oil exports are coming down pretty hard,” said Roger
Diwan, a veteran oil analyst at consultant IHS Markit Ltd.
Despite stiff opposition in Europe and avowed
hostility from China in particular and India, the two top buyers of Iranian
crude, Trump stuck to his tough stance, digging his heels in.
The decline in oil exports, oil being a major
source of tax revenue for Iran, has negatively impacted Iran’s currency, the
rial thus pushing up inflation.
Buyers in Europe and Asia including Japan and
India are scared of sanctions if they continue to trade with Iran. Already, according
to Bloomberg tanker tracking, in the first two weeks of September, Iran sold an
average of 1.6 million barrels a day, down from 2.5 million barrels a day in
“The physical market has clearly tightened, reinforcing the bullish
narrative on geopolitical and supply risks,” said Thibaut Remoundos, founder of
Commodities Trading Corporation Ltd. who’s been trading oil for more than 20
Oil losses from Iran cannot be compensated even
though Russia and Saudi Arabia boost their own output.
European countries could oppose Trump’s actions but European
refiners cannot since they have had little choice but to comply with sanctions.
Washington can cut off access to the U.S. financial system for any company
judged to be doing business with Iran.
With early indications that European nations and Japan will stop
buying Iranian crude altogether next month, the country’s exports can easily
drop another 350,000 barrels a day by November, down to about 1.3 million
barrels a day. South Korea, a major importer of Iranian crude in the past,
hasn’t shipped any oil from Iran for 75 days.
Iran isn’t just losing customers for its crude, like it did
under earlier sanctions from 2012 to 2015, but also for condensate, a form of
super-light oil used mostly in the petrochemical industry. With South Korea not
buying any, total Iranian exports of condensate dropped in the first half of
September to 175,000 barrels a day, down more than 40 percent from April.
The earlier-than-expected decline in both crude and condensate
exports appears to be a reaction to U.S. banking and shipping insurance
sanctions that went into effect over the summer.
“The first wave of sanctions in August sent the message to the
market that the U.S. was serious, and I think has resulted in these early cuts
to Iranian exports ahead of the Nov. 4 implementation of oil sanctions,” said
Joe McMonigle, energy analyst at Hedgeye Risk Management LLC and a former
senior official at the U.S. Energy Department.
Iran attempted to woo and win the buyers like China and India by
offering to ship crude in its own tankers at no extra cost but in vain; in the first two weeks of September, India has loaded
just 240,000 barrels a day of Iranian oil, less than half the usual amount.
initial success, the White House is still far away from its official aim of
cutting Iran’s oil revenues to “zero.” But there are reasons to think exports
could plunge lower still.
4., even the countries that continue buying Iranian oil will struggle to
transfer the money back to Tehran, potentially stranding billions of dollars in
revenues overseas and forcing Iran into barter deals that swap crude for other
goods, traders said. In that way, oil exports will remain above zero, but Iran
will receive only a portion of the revenues.
of Iranian exports is gaining pace,” said Amrita Sen, chief oil analyst at
Energy Aspects Ltd. “This has led to a rise in floating storage off Iran and
onshore storage is nearly full.”