The United States government wanted buyers not to purchase Iranian oil to concern Tehran’s revenue. This event follows the announcement that sanctions will be in effect this coming May. It may also be part of a plan to control increasing prices of crude oil.
According to the current administration, renewal of waivers is impossible for buyers. Without it, major oil importers will face sanctions, which increases their fees when importing. With this news, buyers pleaded to the government to extend their exemptions to purchase Iranian oil.
The re-imposition of sanctions follows the US pulling out of an agreement regarding Tehran’s nuclear program. Following this, the government issued waivers for eight countries, which are all hoping for extensions.
Tehran is defiant and is preparing for the waiver to end without any problem. In this manner, Iranian media reported that Revolutionary Guards threatened to close an oil shipment channel.
While the news alarmed traders and companies, the White House assured its constituents that they are working with top exporters from Saudi and UAE to alleviate the shortage-scare. However, critics argue that the sanctions, along with Venezuela’s, will influence the supply of oil in the market and on its prices.
According to Elizabeth Rosenberg, Director of Energy of Centre for New American Security in Washington, the May deadline is a “surprising” act from the government. With a week before the deadline, traders can buy tons of oil to avoid sanctions. But there’s also a possibility that it will not be out on time since cargos are full in that case.
With the sanction’s re-imposition, oil exports from Iran dropped from $2.5 million barrels per day (bpd) to a low $1 million. Mike Pompeo, US State Secretary, said they are planning to hit zero without giving a grace period to buyers.
A White House representative added that they wanted to alarm Tehran’s revenues to halt their program about nuclear and ballistic missile testing. Moreover, the US government intends to sever the support of Iran in the Syria and Yemen conflict.
According to a senior administration official, the President is sure that Saudi Arabia and the United Arab Emirates (UAE) will highly support the United States’ oil industry to prevent a shortage. Frank Fannon, Assistant Secretary in the Department of Energy, also added that Riyadh is already taking action to improve oil markets.
Meanwhile, the Saudi Arabia oil industry sees them in a different position. Khalid al-Falih, Energy Minister of Saudi Arabia, announced that “oil market developments” are the only thing that they are committing to. They also claimed that they have no commitments to increase oil production. Instead, the country assures constant coordination and communication between other oil producers to provide it in the market.
In terms of prices, the international Brent benchmark tallied at $74 per barrel of oil while the US prices peaked at $65.92–the highest since October 2018. Both increases are due to the uncertainty of supply from Saudi Arabia to meet the possible shortage coming from Iran.
As of today, there are still uncertainties regarding the supply of oil in the markets when the sanctions would be in effect. But according to Rober McNally, president of an energy consulting company, President Trump is confident despite the price hike and possible geopolitical problems. He also believed that the connection to Saudi Arabia and the UAE would spike oil production larger than Iran’s industry.
Other Countries’ Side and Supply
There are eight other countries that the Trump administration wanted their waiver to end. The list includes India, China, Japan, South Korea, Taiwan, Turkey, Italy, and Greece, which all expecting that
their waivers to extend.
However, John Bolton, national security adviser, is already working on the deadline. Following the statement, several countries are now decreasing their purchase of Iranian oil products while others disagree with the decision.
OPEC dropped its supply by 1.2 billion bpd while Saudi Arabia reduced theirs to 800,000 bpd. Both support the United States’ decision.
Turkey disagrees with the American government’s decision, but a senior administration official already said that there’s an indication of the choice of “going to zero purchase.”
On the other hand, Italy, Greece, and Taiwan already stopped their purchases. Countries like South Korea and India also released a statement regarding the issue.
South Korea’s Foreign Ministry stated that negotiations to the United States are ongoing regarding the extension of the waiver. Regardless of this, they will release an announcement about their stand to the issue before May and rest assured that Seoul’s position reflects that.
There is no official statement about India’s final position about the end of the waiver. However, the country is already looking for another supplier other than Iran.
For countries like China and Japan, halting their purchases is a big challenge for their economy. Chinese Foreign Ministry spokesman Geng Shuang that their connection with Iran follows their law of bilateral cooperation. Hence, they also disagree with the US sanctions for Iran’s oil industry since it will affect the law.
In Japan’s case, there are no plans to comment about the decision, according to the spokesman of the Japanese Embassy based in Washington. However, there is an ongoing discussion about the issue at the Japanese Foreign Minister and Pompeo recently.
A meeting with Japan Prime Minister, Shinzo Abe, in Washington that will talk about North Korea and China challenges may also involve this issue.
