By Mahmoud Hakamian
President Trump decided not to issue any exceptions to the US sanctions. The current waivers are scheduled to expire on May 2nd. The White House issued a statement regarding Washington’s decision to bring Iran regime’s oil exports to zero. The US, along with OPEC members, are “Committed to ensuring that global oil markets remain adequately supplied. We have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market.”
The US re-imposed sanctions on Iranian crude oil has assured the increase of economic pressure against the Iranian regime. Initially, however, waivers were granted to eight countries, including China, India, Japan, South Korea, Taiwan, Turkey, Italy, and Greece. This decision provided US allies and partners time to switch away from Iranian oil, without causing any dramatic effect to the then well-supplied oil market.
The waivers allowed the Iranian regime to export about one million barrels per day (bpd). This amount was much lower than the roughly 2.5 million bpd it was exporting last year. Now, with the waivers denied, Iran regime is expected to face much more significant difficulties. Without waivers, Iranian oil exports are facing collapse, and the impact of already high oil prices will be felt by all economies around the world.
The US was expected to simply have countries reduce flows from Iran, and make an easy transition to other suppliers. With increases in oil production and exports from OPEC members, primarily Saudi Arabia this could have been accomplished. Now, though, Saudi Arabia and the cartel seem to be avoiding any reference to output increases from their side. Saudi Arabia’s negotiation power is strong, so it may test how high oil prices can be pushed.
Meanwhile, we must still expect crude oil exports from Iran to continue, but with the volumes pushed much lower than current levels. The tanker shipping sector do not view higher prices as positive news, and the Iranian regime continues its threats to block the Hormuz Straits if the US proceeds with full restrictions on Iranian barrels. At least a fifth of the world’s flows pass through the region, and would disrupt flows from major exporters, including Iraq, Kuwait and Saudi Arabia.
Oil prices spiked by more than two per cent on Monday. Now that summer driving season is approaching in the US, Americans are concerned. Many expect to face much higher prices than last year.
While most of the countries who were allowed waivers can easily find alternatives, South Korea is primarily interested in ultra-light condensate used in petrochemicals. Some of the supply is being replaced by the US, but prices are not as competitive as they were with Iran.
As well, Beijing expected exceptions to be extended. As Foreign Ministry spokesman Geng Shuang recently commented, China’s cooperation with Iran has been “open, transparent, reasonable, and legitimate.” The US previously allowed China to import 360,000 bpd, while India was permitted 300,000 bpd. Unless major producers, the members of OPEC, will cover the gap, then replacing these Iranian barrels might prove difficult, and oil price could be pushed much higher.
Russia is not to be on board with an “uncontrolled” price increase, Vladimir Putin reportedly stated. Moscow has no reason to follow the OPEC+’s agreement after June, and a potential increase in its exports could eliminate the impact of Iran regime’s collapse.