Oil prices jumped to a six-month high on Monday as US President Donald Trump announced his decision to end the 180-day sanctions waivers on the eight major buyers of Iranian oil. A statement issued by the White House said, “In line with the presidential declaration, beginning in early May, China, India, South Korea, Turkey, Japan, Taiwan, Italy, and Greece will face US sanctions if they continue to buy Iranian oil.” The US says its decision to not reissue the ‘Significant Reduction Exceptions’ when they expire on 2 May is intended to reduce Iran’s oil exports to zero.
The US reiterated that it, Saudi Arabia, and the United Arab Emirates (UAE), three of the world’s largest oil producers, are committed to ensuring that global oil markets remain adequately supplied. “The kingdom of Saudi Arabia and other members in OPEC will completely provide any shortage of the world’s oil supplies,” the White House statement said. Saudi Energy Minister Khalid al-Falih said the kingdom will coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance.
Three of the eight countries benefiting from the sanctions waivers—Greece, Italy, and Taiwan—stopped importing Iranian oil fairly promptly after the US sanctions were imposed in November 2018. Japan has also halted or sharply cut back its purchases. South Korea stopped buying Iranian oil toward the end of the year but resumed in January. In March it imported 284,600 b/d.
India, for which Iran is one of the major oil suppliers, is likely to face big problems following the US decision, not least because it is also under US pressure to cut oil purchases from Venezuela. China, Iran’s other big customer, has lambasted the US move, saying its trade is perfectly legal and the US has no jurisdiction to interfere. Turkey was most outspoken in lobbying for a waiver extension, saying that it badly needs the oil, that as a neighbor it cannot cut ties with Iran, and that the sanctions campaign will not work anyway.
Oil industry analysts view the US goal of zero Iranian oil exports as unrealistic. Iran was exporting an average of 2.5 million b/d before US sanctions were imposed on some buyers in November 2018. However, because its major customers were exempted, the country was still able to export an average of 1.9 million b/d in March this year. A complete removal of the waivers is likely to reduce this to less than 1 million b/d, according to the industry database TankerTrackers.com.
The Brent oil price collapsed to just below $52/b at one point in December after the imposition of what were seen to be weak US sanctions. The decline was exacerbated by the fact that Saudi Arabia had boosted production sharply before the US decision. Brent prices rose 3% to just over $74.50/b after yesterday’s announcement.
Meanwhile, Iran has insisted it will be able to cope with the tightening of sanctions. The news agency Tasnim quoted an unnamed oil ministry official as saying, “Whether the waivers continue or not, Iran’s oil exports will not be zero under any circumstances unless Iranian authorities decide to stop oil exports…” Separately, Iran’s military leaders warned the country was ready to close the Strait of Hormuz, the major choke point for Arab and Iranian oil exports, if other countries attempted to use it to block Iranian oil shipments. “According to international law, the Strait of Hormuz is a marine passageway and if we are barred from using it, we will shut it down,” General Alireza Tangsiri told the Fars news agency.
By Natasha Alperowicz
Source: Chemical Week
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