Six months after the U.S. rocked oil markets by letting Iranian exports continue, its decision to end sanctions waivers that allowed shipments is also set to reverberate across the globe.<\/p>\n
The U.S. is said to announce Monday morning in Washington that it won\u2019t renew exemptions from its sanctions to buyers of Iranian crude after they expire on May 2. It marks a change in direction from November last year, when the Donald Trump administration granted waivers to eight importers as it sought to temper fuel prices ahead of American mid-term elections.<\/p>\n
The move threatens to squeeze supplies further in a market that\u2019s already facing supply disruptions from Venezuela to Libya and Nigeria, and extend this year\u2019s rally in global benchmark Brent crude above $70 a barrel. Prices are still below the four-year highs of over $86 they hit in October before the U.S. issued its waivers.<\/p>\n
What the\u00a0 waivers\u00a0allowed: China \u2014 oil imports of as much as 360,000 barrels a day India \u2014 as much as 300,000 b\/d of crude purchases South Korea \u2014 200,000 b\/d of condensate, an ultra-light oil Japan \u2014 exempted volume unknown; shipping data shows it bought 108,000 b\/d that loaded in March Turkey \u2014 about 60,000 b\/d Taiwan \u2014 volume unknown; nation\u2019s refiners said previously they don\u2019t plan to buy anything even with waivers<\/p>\n
Here are some of the potential implications of the Trump administration\u2019s latest decision, which is aimed at piling economic pressure on Iran over the Persian Gulf state\u2019s nuclear program by cutting off a key source of the OPEC member\u2019s revenue.<\/p>\n
The U.S. government will also announce that it got commitments from suppliers such as Saudi Arabia and the United Arab Emirates to offset the loss of Iranian crude, according to people with knowledge of the matter.<\/p>\n
That could jeopardize the output deal between the Organization of Petroleum Exporting Countries and its allies, which have been curbing supplies since the start of the year to avert a glut. Russia, one of the partners in the pact, has already signaled that the cuts may not need to be extended. A decision is expected when the producer group known as OPEC+ meets in June.<\/p>\n
The pact was driven by Saudi Arabia after it was blindsided last year by the U.S. decision to grant waivers, which sparked a collapse in crude into a bear market in the fourth quarter. Now, the American pledge to eliminate oil exports from Iran may provide an incentive for Crown Prince Mohammed Bin Salman \u2014 a Trump ally \u2014 to ease the kingdom\u2019s policy.<\/p>\n
While crude has jumped more than 3 percent on the news that the U.S. won\u2019t renew exemptions, the future direction of prices may be determined by how much the likes of Saudi Arabia and the U.A.E. are able to cushion the blow amid other supply disruptions.<\/p>\n
Last year, prices jumped to over $86 a barrel even though Saudi Arabia was pumping at record levels. Now, it\u2019s not just Iranian shipments that are disrupted. Separate U.S. sanctions on Venezuela have squeezed supplies from that OPEC producer too, while fellow group member Libya is roiled by violence. Just on Sunday, a key oil pipeline in Nigeria was halted after a fire.<\/p>\n
Iran\u2019s exports in March totaled about 1.3 million barrels a day, tanker-tracking data compiled by Bloomberg show. Shipments were as high as 2.5 million barrels daily in April last year, before the U.S. announced plans to reimpose sanctions on the Islamic Republic.<\/p>\n
The current set of waivers expiring on May 2 allowed China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan to continue importing Iranian crude without being subjected to retaliatory U.S. sanctions. With the end of the waivers, the buyers face being cut off from the American financial system if they continue purchases.<\/p>\n
Of the buyers, Asian nations India, South Korea, China and Japan are likely to be the hardest hit. If crude prices go higher, the budget deficit in import-dependent nations may also worsen and inflation could accelerate. The biggest importers had already put purchases from the Persian Gulf state on hold as they waited for the U.S. decision.<\/p>\n
South Korea\u2019s Hanwha Total Petrochemical Co. has already been buying and testing alternative cargoes from areas such as Africa and Australia. While it\u2019s not impossible to find other options, that would raise costs and could affect the company\u2019s profits, according to a spokesman.<\/p>\n
Some buyers may find relief in the shape of rising U.S. shale exports. South Korea, for example, buys a form of ultralight oil known as condensate from Iran, which can potentially be replaced with an alternative from America \u2014 though it would mean higher freight costs owing to a longer shipping journey.<\/p>\n
But for others, U.S. shipments may not be the best option. That\u2019s because American shale supply is typically made of \u201clight-sweet\u201d varieties that have a relatively low sulfur content and density. The type of crude that\u2019s being squeezed in the market \u2014 from Venezuela for instance \u2014 are \u201cheavy to medium sour\u201d grades that are more sulfurous and denser.<\/p>\n","protected":false},"excerpt":{"rendered":"
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