6 Regional Oil Market Developments Ahead Of U.S. Sanctions Against Iran

For oil markets, November 5—the date when US economic sanctions against Iranian oil and gas will go live—is just around the corner. Below are six recent regional developments that could impact the price of oil over the next several months, before the embargoe takes effect.h2 1. China/h2

China is Iran’s largest customer. In July it imported 767,000 barrels of oil and condensate per day from Iran. Ahead of the sanctions, many insurance providers have stopped covering tankers carrying Iranian oil.

To front-run this problem, according to Reuters, Chinese importers such as state-owned Zhuhai Zhenrong and Sinopec Group (NYSE:SHI) had a deal in their contracts with Iran stipulating that if sanctions go into effect, each could switch to using tankers operated by Iran. According to the terms of this deal, a subsidiary of the National Iranian Oil Company (NIOC) would cover all of the risks and costs associated with crude oil transportation and delivery to China. China and Iran agreed to switch to Iranian operated tankers in July and China is expected to continue importing Iranian oil in this manner.

China has said it has no plans to according to the Iranian oil minister, that waiver was denied.

Iran stated earlier that Chinese state-owned oil company CNPC would take over Total’s share in the project. The South Pars deal was originally designed as a joint effort by Total, CNPC and NIOC subsidiary Petropars. It is not yet clear whether CNPC has accepted this stake, which would raise its involvement in the project from 30% to 80%. Total’s withdrawal from the project is a major setback to the development of new Iranian gas resources.

India has been Iran’s second largest customer, with Iranian oil supplying India with about 10% of its demand. Several privately owned Indian refineries have been cutting their imports of Iranian oil. However, India’s state-owned refineries have not.

Indian officials said that India would not abide by US sanctions. Nevertheless, now that US secondary sanctions are imminent, India appears to have changed its official policy and will be asking the US government for an official waiver.

India may Reuters is now reporting that the government of Iraq has decided to ask the US for permission to “ignore” the US sanctions against the Iranian oil industry. Iraq recently inked a deal with Iran to swap crude oil from its northern Kirkuk field with oil from Iran’s southern fields. The plan faced delays getting started as there is no pipeline infrastructure connecting the two countries and plans to truck oil across the border to Iran were delayed by security concerns.

Iran is a major trading partner with Iraq. About 15% of all of Iraq’s imports of goods come from Iran. It is not clear what the US intends to do with regard to this waiver request from Iraq, but considering how much oil Iraq itself produces, it seems highly unlikely that the Trump administration will grant such a waiver.

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The United States is preparing to release oil from its Strategic Petroleum Reserve in advance of the sanctions. The Trump administration is concerned that the removal of Iranian oil from the market will cause oil prices to spike right around the midterm elections.

If gasoline prices rise too much, this could be politically difficult for the Republican Party during these elections. Congress authorized the sale of this oil before the Trump administration announced the new sanctions, but the oil currently up for sale by the US Department of Energy is timed so that 11 million barrels of sour crude will be released around the same time as the sanctions go into place.

Iran is attempting to make its oil more attractive to its Asian customers by cutting prices. So far is has slashed the price of its light crude grades by 80 cents per barrel and the price of its heavy crude grades by 60 cents per barrel.

Written By: Ellen Wald