In face of impending sanctions, Iran's oil exports fall

The US sanctions taking effect in November bar any country that imports Iranian oil or invests in Iran from doing business in the US.
Friday 26/10/2018
Malta-flagged Iranian crude oil supertanker "Delvar" is seen anchored off Singapore March 1, 2012. (Reuters)
Malta-flagged Iranian crude oil supertanker "Delvar" is seen anchored off Singapore March 1, 2012. (Reuters)

WASHINGTON - Iranian oil exports and production have fallen sharply since the United States said it was withdrawing from the Iran nuclear deal and the decline is likely to continue when the United States reimposes sanctions on the country's oil sector starting November 4, a report by an agency of the US Department of Energy said.

The world’s largest importers of Iranian crude oil -- India, China and Turkey -- are scrambling to continue some imports once the sanctions resume and officials are in negotiations with the United States.

Other major importers, such as France and South Korea, stopped buying Iranian oil in apparent compliance with the sanctions, the US Energy Information Administration (EIA) said in its report.

Iran’s oil exports have fallen from 2.7 million barrels per day (bpd) in June to 1.9 million bpd in September, the EIA said. The decline coincides with US President Donald Trump’s announcement in May that he would withdraw from the agreement signed by US President Barack Obama that lifted sanctions against Iran in exchange for Tehran halting its suspected nuclear weapons programme.

The pending resumption of US sanctions against Iran’s oil sector created uncertainty about the supply and price of oil and about which countries would comply with the US attempt to halt Iranian oil exports. The decline in Iranian oil exports was accompanied by a sharp price increase to about $80 per barrel, up from $57 a barrel in 2017. That price increase could help Iran offset revenue lost from the decline in exports, analysts said.

“Iran set its budget to $57 oil, so $80 oil even with lost exports isn’t bad,” Richard Nephew, who advised Obama on Iran sanctions, told Foreign Policy magazine. Iran earned $55 billion in oil revenue in 2017, the EIA said.

The reinstatement of US sanctions comes at a time of unusual tension between the United States and Saudi Arabia over the killing of US-based Saudi journalist Jamal Khashoggi inside the Saudi Consulate in Istanbul. The United States is investigating the death and is threatening to punish Saudi Arabia at the same time that it needs Riyadh -- one of the world’s largest oil exporters -- to help avoid disruptions in the international oil market.

OPEC’s spare production capacity is projected to fall to 1.3 million bpd, down from 2.1 million bpd in 2017, which will push oil prices higher, the EIA report stated. Trump has been urging OPEC to increase oil production.

The US sanctions taking effect in early November will bar any country that imports Iranian oil or invests in Iran from doing business in the United States and from using US dollars for international transactions. Those sanctions will cause much more harm to the Iranian economy than sanctions the United States instated in August that prohibit Iran from using US dollars and bar purchases of Iranian goods such as automobiles and metals.

Turkey has been negotiating with the Trump administration to continue buying Iranian oil even as it reduces Iranian oil imports, Reuters reported. Turkey is the world’s third-largest importer of Iranian oil, buying approximately 100,000 bpd.

India is also in talks with the US State Department. Spokesman for India’s Ministry of External Affairs Raveesh Kumar said India has told the State Department that “the price of crude oil is a matter of concern for our domestic economy and directly affects the common people.”

India recently passed China as the world’s largest importer of Iranian oil, buying an average of 576,000 bpd in September, the EIA report said. China imported 441,000 bpd in September, down from 554,000 bpd in the first six months of 2018.

Conflicting reports emerged from China about whether it would comply with US sanctions. Reuters reported October 18 that a Chinese port that usually receives 1 million-3 million barrels of Iranian oil per month was preparing to receive shipments totalling 22 million barrels of oil in October and November. However, on October 24, Reuters reported that China’s two largest state-run oil refiners were not planning to receive Iranian crude.