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Closing the Export Door: US aims to push Iranian exports to zero, eliminating all sanctions waivers

Apr 22, 2019

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  • Last week in our post, “Rise Like a Gusher or Just Dribble Lower? Mixed Economic Data Clouds Outlook for Oil Prices,” we highlighted that the outlook for oil prices will remain clouded until the conclusion of a May OPEC meeting and until we receive clarity on US sanctions on Iran, which were set to expire in May. Well, commodities Christmas came early as the Trump administration announced today that the US will end waivers for Iranian crude oil exports for all countries, which include powerhouses like China, South Korea, and India.
     
  • The end of exemption waivers, originally set to expire in May, will further squeeze the crude oil supply, sending the price/bbl of crude oil higher in today’s trading, as can be seen in the chart below.  

 

 

  • The Trump Administration originally placed sanctions on Iranian oil outputs in November, however, the sanctions included exemptions for several countries including China, Greece, India, Italy, Japan, South Korea, Taiwan, and Turkey. The exemption allowed these countries to continue purchasing Iranian crude oil, alleviating the squeeze on oil supplies that preceded the sanctions.
     
  • China was the largest purchaser of Iranian crude oil over this time period, importing an average of 613,000 bbls/day.  
     
  • South Korea was the second-largest purchaser of Iranian crude oil over this time period, importing an average of 387,000 bbls/day. 
     
  • India was the third-largest purchaser of Iranian crude oil over this time period, importing an average of 258,000 bbls/day.
     
  • Despite the bullish price movement in crude oil markets that followed the announcement of eliminated exemption waivers, many believe that the crude oil supply squeeze may soon come to an end.
     
  • The US government may be poised to announce that they receive commitments from other crude oil suppliers, such as Saudi Arabia and the United Arab Emirates, to hike their oil output, according to a Bloomberg article citing people familiar with the matter. This move would jeopardize the crude oil output deal that was agreed upon by OPEC in order to avoid a supply gut.
     
  • Bloomberg also notes that Russia has already signaled it may end crude oil out cuts as there is no need for them to be extended.
     
  • Despite the clear bullish reaction in crude oil prices today, the outlook for oil remains clouded. Does the Trump Administration strictly want to tighten sanctions on Iran, regardless of the adverse impact? Or could an announcement be coming that truly will offset the loss of crude oil supplies resulting from lifting Iran crude oil export exemptions? One thing is clear, however; the US intends for Iran to feel the impacts of tightened restrictions on its most exported good.

 

 

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