In three months’ time, U.S. sanctions on Iran are due to enter into force that could drive the Persian Gulf nation’s exports down toward zero and upend the global oil market. There are already signs that it will be harder for the country to export, as some international insurers stop covering shipments.
The U.S. measures require buyers to cut purchases or run the risk of their banks being excluded from the American financial system. If they do scale back, then there’s a risk of spiraling crude prices.
Iranian Crude Outflows
Destination of exports by share
A summary of the main Iranian oil importers’ reactions and positions is set out below. Observed flows and exports are from tanker tracking data compiled by Bloomberg. To calculate what that equates to as a share of each country’s overall purchases, import data from the Riyadh-based Joint Organisations Data Initiative were used.
- Observed flows (Jan.-June): 675,000 b/d
- Share of observed exports (Jan.-June): 26%
- Share of imports (Dec.-May): 7%
- What government has said: While Beijing has agreed to not ramp up purchases from Iran, China has rejected a U.S. request to cut them, according to two officials familiar with negotiations. China will continue to cooperate with Iran without violating international obligations, foreign ministry spokeswoman Hua Chunying said back in June. In July, China continued to pay for Iranian crude imports in yuan.
- What companies have said: Nothing.
- Observed flows (Jan.-June): 597,000 b/d
- Share of observed exports (Jan.-June): 23%
- Share of imports (Nov.-Apr.): 11%
- What government has said: Foreign Minister Sushma Swaraj at first stated that India only complied with United Nations-mandated sanctions. Then, in June, the oil ministry held a meeting with refiners and asked them to prepare for a scenario of ‘drastic or zero’ imports of Iranian oil from November, Reuters reported. The country is currently trying to find alternative payment methods to enable it to continue buying from the Islamic Republic.
- What companies have said: Indian Oil Corp. Chairman Sanjiv Singh said in July that Saudi Arabia alone can cover most of the world’s supply shortfall if Iran’s oil exports dry up. “We have Plan B, Plan C, Plan D. We are fully prepared,” he said. IOC and Bharat Petroleum Corp. kept buying Iranian crude in July and have started contracting oil from the Persian Gulf country for August deliveries. Hindustan Petroleum Corp., the third biggest state refiner, is unlikely to buy any more Iranian oil until India gets a waiver from the U.S., since its new insurance cover for its refineries would be invalidated by processing Iranian oil, according to a person familiar with the matter.
Mangalore Refinery and Petrochemicals Ltd. said in its annual report that it’s looking at alternative sources like Australia, West Africa and South America to supplement any reduction from the Persian Gulf nation, which supplied a quarter of its oil needs. Shipping data compiled by Bloomberg show Reliance Industries Ltd., India’s largest petrochemical firm, cut Iranian oil imports in June, although month-on-month flows are prone to big swings.
- Observed flows (Jan.-June): 286,000 b/d
- Share of observed exports (Jan.-June): 11%
- Share of imports (Dec.-May): 10%
- What government has said: South Korea is waiting for an official response from the U.S. on whether its refiners can continue importing Iranian crude and condensate during the 180-day wind-down period, an official from the nation’s energy ministry said in early July. The country already put some imports on hold in June.
- What companies have said: Refiners are substituting condensate from Iran with a processed fuel known as naphtha from elsewhere. SK Innovation Co., the Asian country’s top processor, Hanwha Total Petrochemical Co. and Hyundai Oilbank Co. all rushed to procure supply for July and August from other suppliers. Refiners didn’t buy supplies for July and will only decide whether to buy Iran’s South Pars condensate for the rest of the third quarter after negotiations between their government and the U.S. administration.
- Observed flows (Jan.-June): 125,000
- Share of observed exports (Jan.-June): 5%
- Share of imports (Dec.-May): 4%
- What government has said: Since the U.S. pulled out of the Iran nuclear deal, Japan has sought a waiver from the U.S. measures. Japan’s Finance Minister Taro Aso in June asked the U.S. to give more clarity and reassurance to Japanese firms. Talks will continue, Japan’s foreign ministry said in early August.
- What companies have said: Japan’s refining industry wants the government to “tenaciously hold talks” with the U.S. to get a waiver on America’s renewed sanctions on Iran, Takashi Tsukioka, chairman of refiner Idemitsu and of the Petroleum Association of Japan, said last month. The executive sees it as “unreasonable” for Japan to be impacted in the same way as countries that have boosted Iranian oil imports. Japanese shipping companies and major banks, such as MUFG Bank and Mizuho Bank, have told oil distributors they may soon halt transactions with Iran. Refiners were told that the banks won’t handle transactions for Iran-related deals that were signed on or after May 8, and that those signed before that period will be dealt with “on case-by-case basis”. Idemitsu declined to comment on what the company will doin response. Fuji Oil is considering halting crude imports from Iran earlier than it expected. The firm hasn’t determined a deadline yet and is still processing oil supplied under long-term contract. Cosmo Energy said it will likely halt Iranian crude imports after taking July-loading cargoes—if Japan doesn’t receive waiver, according to people with knowledge of the matter.