U.S. sanctions on Iran’s exports of crude oil and condensate came into effect today, with waivers granted to eight of Iran’s traditional customers in Asia and the Mediterranean. It seems the waivers may be a useful negotiating tool for the Trump Administration and, thus, although they expire in 6 months, it is likely they will be extended. Even with these waivers, Iranian exports will still fall by roughly 1.2 million b/d in 2019.
Iranian exports to fall by 1.2 million b/d compared to 2017
As predicted in last month’s Global Crude Oil Outlook, the Trump Administration has granted waivers to the sanctions on Iran to several Iranian crude oil importers. The U.S. Treasury Department’s list of “significant reduction exemptions” includes eight countries that can continue importing Iranian crude oil after the start of sanctions on 5 November: China, India, Japan, South Korea, Taiwan, Turkey, Italy, and Greece. The U.S. government has not released the volume of the exemptions, but we expect the waivers to enable Iran’s traditional crude and condensate customers to import an estimated 1.2 million b/d in 2019, as the table below shows – a reduction of about 1.2 million b/d from 2017 exports of 2.4 million b/d.
The waivers expire in 180 days, and their extension beyond May 2019 depends on the Trump Administration’s perception of good behavior among waiver-holders. A key criterion for granting the waivers, according to the administration, was a reduction in imports from Iran compared to the first half of 2018. For an extension, waiver holders will need to continue to reduce Iranian imports by May; each country’s imports will probably be measured against the second half of 2018. We expect the waivers to be extended, and with the next waiver extension deadline coming in October, Iran’s exports should continue to decline gradually over the next 12 months.
With its transactional approach to foreign policy, the Trump Administration can use the waivers in a carrot and stick approach to incentivize the sort of behavior that backs Washington’s agenda on trade and tariffs, North Korea, and other global issues. The waiver extension option also allows the administration to react to changes in the price of oil. Although we are not forecasting a crude oil supply shortage in 2019, the waivers give Washington discretion over a large volume of Iranian exports, which it could reduce further by cutting waivers. The waiver extensions will depend not only on Iran’s behavior and these eight countries reducing their imports of Iranian oil, but also on their broader relations with the U.S.