As expected, President Trump withdrew the U.S. from the nuclear agreement and re-imposed sanctions on Iran and companies that do business with Iran. This includes companies who buy crude oil from Iran. This could reduce Iran’s crude exports by about 300,000 b/d by late this year – a significant volume, but not as large as press reports have indicated.
President Trump issued a National Security Presidential Memorandum (NSPM) directing the Treasury Department to take action on his decision. The Treasury Department referred to 90- and 180-day “wind-down” periods during which companies could conclude existing business under the sanctions relief of the JCPOA. Petroleum-related transactions fall under the 180- day wind-down. This suggests the export of Iranian crude will be impacted on or around November 4th, 2018.
The U.S. sanctions on crude oil sales fall under the National Defense Authorization Act of 2012. Notably, that law asks for a significant reduction in the volume of crude purchased but does not define “significant.” Under President Obama, it was roughly a 20 percent reduction. That metric or something similar may guide the Trump Administration as well. The President is also required to determine if there is sufficient crude oil and products available from other countries to allow for a significant reduction in Iranian purchases. With shale production booming and OPEC output voluntarily constrained, the White House is unlikely to identify a shortage of alternative supplies.
How Much will Iranian Exports fall in Q4?
There remains the possibility that Europe will get some special treatment with regard to these sanctions although President Trump’s statement did not indicate such accommodation. Certainly, since the EU is not re-imposing its own sanctions on Iran’s crude exports – which it did in 2012-2015, as the table below shows – the impact on exports to Europe will be limited. Meanwhile, although we do not expect China to take steps to openly oppose the U.S. position, we expect China to find other methods for purchasing Iranian crude and will likely not cut purchases. If we consider a 20% percent drop for most Iranian customers, then Iran’s crude exports could theoretically look like the following table. Iran’s exports could fall to an average of 2.2 million b/d in 2018, some 300,000 b/d lower than last year.
Finally, the hardline of the Trump Administration, expressed today, can also be seen as a negotiating position, and thus we would not rule out further negotiation among some or all parties over Iran’s nuclear program, especially the sunset provisions of the JCPOA or its possible successor.
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