Here Are The Countries That Buy Iran's Oil, And What They May Do Next

With Trump having started the 6 month process of pulling out from the Iranian nuclear deal (or rather as Steven Mnuchin admitted, Trump's true intention is merely renegotiating the existing deal and "entering a new agreement") the biggest concern among traders and analysts is what impact the Trump decision will have on Iran's oil exports.

As a reminder, some such as Barclays have suggested that Iran's oil production may not be affected at all; others such as UBS predict the sanctions could lead to the reduction of oil exports by 200-500kb/d over the next 6 months. Meanwhile, Deutsche Bank notes that because of the 180-day wind down period, neither Iranian oil production nor exports will drop before the 5 November 2018 effective date. In fact, if behavior follows the example from 2012, there is the possibility of a short spike in Iranian exports just before the effective date, after which a slow decline may set in.

As Goldman explains this morning, the final impact on Iran oil will likely be somewhere inbetween, with the ultimate impact on Iran production rather negligible for the foreseeable future. The reason for that is that following the announcement, other signatories of the deal reiterated their support for the agreement as well as their desire to revisit it. President Macron said that France, Germany and the UK regretted the decision and the EU vowed to uphold the Iran nuclear accord. Russia announced that the US alone would not be able to overturn the deal and its Deputy Foreign Minister said it was willing to support France's proposal for new negotiations.  At the same time, Iran announced that it will remain in the nuclear deal and will start talks with European nations, China, and Russia.

So with the support of the other deal signatories in place, Goldman's Damien Courvalin writes that the impact on Iranian production may be more limited than implied by the US secondary sanctions, and certainly less than the 1mmb/d decline seen in 2012-15 which many use a benchmark for what happens next.

After all, as shown in the chart below, the bulk of Iranian exports is shipped to Asian countries - most of whom have already said they will continue importing Iranian oil - while the handful of European nations that received Iran crude will likely continue to do so in the future, once they request, and are granted, sanctions waivers.

Here is another breakdown, courtesy of Bloomberg:

For Iran's clients what happens this time will likely echo the last episode earlier this decade, when Iran was also sanctioned by the US. Back then countries were given exemptions by the U.S. - reviewed every 180 days - if they “significantly” reduced imports from the Islamic Republic. While a specific quantity of reductions that would make buyers eligible for waivers wasn’t announced, a slew of nations including China, India and South Korea received them.

Overnight, Japan became the first country to confirm that it will seek a waiver. The nation plans to find out whether its current import volume is enough to get an exception or whether it needs to further reduce purchases, Bloomberg reported.

Meanwhile, nations such as China, India and Turkey will most likely oppose outright the U.S. move and keep current levels of Iranian crude purchases; still some smaller US allies including South Korea may comply, unless they get a waiver, over concerns of they could lose a security umbrella against North Korea, according to MUFG Bank.

* * *

Separately, and in another deja vu to the last Iran sanctions, in order to skirt the U.S. financial system, Asian buyers could also resort to using currencies other than the dollar to pay Iran for their oil purchases. Payments may be routed through either local or foreign banks that don’t have close ties to America.

India initially paid Iran via a Turkish bank before routing payments through a domestic financial institution the last time sanctions were in place. The nation, along with China, also sought to get around the restrictions by trading oil with the Persian Gulf state for local currencies and goods including wheat, soybean meal and consumer products.

The EU could seek to protect its entities operating in Iran by offering currencies other than the U.S. dollar through institutions including the European Investment Bank, MUFG’s Khoman said. Indian oil buyers said they can continue to make payments in euros as long as the European Union doesn’t impose sanctions on the Persian Gulf state.

* * *

As a result of these unknowns, and given this uncertain impact on global oil supplies, Goldman writes that, like Barclays, it has not assumed a loss of Iran production in its base case supply forecasts yet, and adds the following:

while we view yesterday's decision as introducing upside risks to our Brent price forecasts (3-mo at $82.5/bbl), there remain potential mitigating

  • factors. First, the US could release SPR barrels to help compensate for lost Iranian production, with Iran demand also set to decline due to the sanctions.
  • Second, Section 1245 of the National Defense Authorization Act for Fiscal Year 2012, which governs the implementation of oil sanctions on Iran, specifies that their implementation requires an assessment as to "whether the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers to reduce significantly in volume their purchases from Iran".

Our outlook for a tight oil market in 2H18-1H19 could therefore leave the magnitude of the required Iran import reductions below the 20% targeted in 2012. Medium term, we would expect to see a greater shale supply response to high oil prices, especially once pipeline bottlenecks in the Permian ease (2H19).

That said, there are clear upside risks to the oil prices, among which the hawkish tone of President Trump, the re-introduction of all the past secondary sanctions, the guidance to begin implementation immediately and finally, the high efficiency exhibited by the latest round of US unilateral sanctions on Rusal all raise the risk that Iranian production declines sharply even despite this foreign support.

Of course, a worst case scenario, where as much as 1mmb/d in Iranian production is taken offline, will merely boost production from the likes of Saudi Arabia which have substantial excess capacity to pick up the slack. Some more from Goldman:

Importantly, it is unlikely that a sharp decline in Iranian exports translates into a commensurate decline in global supplies. The US Treasury Secretary commented that the US has had conversations with various parties that would be willing to increase oil supplies to offset Iranian losses. In particular, Saudi Arabia's energy ministry issued a statement saying that the country was committed to supporting the stability of the oil market after the US decision to withdraw and that the Kingdom would work with major producers and consumers with and outside OPEC to curb the effects of any supply shortages (also helping limit the offsetting beneficial impact of higher oil prices for Iran in our view).

Saudi Arabia had already boosted its oil output during the last round of sanctions. Admittedly, there is no guarantee that Saudi Arabia would deliver a perfect offset to lost Iranian volumes, especially given its assessment that the rebalancing of the oil market is not yet achieved. And even if Saudi Arabia did match Iran's production losses, it would simply reduce an already relatively low level of production spare capacity.

Curiously, the biggest risk for an upside price spike has little to do with Iran, and everything to do other potential supply choke points: growing geopolitical tension in other key oil producing countries like Saudi Arabia, Venezuela, Libya and Nigeria create risks of additional production losses in the face of depleted inventory buffers, according to Courvalin.

For example, yesterday also saw a military confrontation between Israel, Syria and Iran. The situation in Venezuela has already led to a 600 kb/d decline in production over the past six months (more barrels than presently at risk in Iran), with no sign of any slowdown in production declines. In fact, the seizure of Venezuelan assets this week has lead to a stall in local exports.

In addition, Vice President Mike Pence announced renewed sanctions on Venezuela yesterday while asking that Venezuela suspend its May 20 presidential elections.

To summarize, while Goldman does not believe that the Iran deal alone will result in production declines, the bank concludes that elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce its view that oil price volatility will continue to increase.

Comments

tmosley Wed, 05/09/2018 - 09:32 Permalink

Iran is going hard into cryptocurrencies as a way to bypass sanctions. Countries that buy oil from Iran will likely pay with crypto.

This is a big deal.

Took Red Pill FreeShitter Wed, 05/09/2018 - 09:38 Permalink

"EU vowed to uphold the Iran nuclear accord" So why does Europe back the Iranian deal and not the US? Because Iran has dumped the petro-dollar and switched to the Euro. It’s all about the banking, mother fuckers. Same reason George W. took out Saddam in Iraq and Obama took out Gadhafi in Libya (except Libya didn’t want the Euro either so Europe supported that invasion). Check out Redacted Tonight video;

https://youtu.be/VobUNfYwlss?t=1s

In reply to by FreeShitter

MK ULTRA Alpha ne-tiger Wed, 05/09/2018 - 16:51 Permalink

The US and Iran have a heated naval relationship. The Iranian oil export estimate in this article doesn't account for a US Iranian naval engagement.

The 5th Fleet is stationed on the Arab side of the Persian Gulf. The Iranians have been building up to fight the 5th Fleet. We've seen many examples of posturing by the Iranians.

The US may conduct a false flag to engage the Iranian navy. Trump's plan is a new deal restricting ballistic missile development, Iranian withdrawal from Syria, but there are sinister elements within the US military and Deep State prepared to fight Iran.

The pressure from both Israel and Saudi Arabia for a US war against Iran is pulling every string and greasing every palm. There's big money riding on a war with Iran.

The price of oil would be much higher and would payback costly bribes.

There can be no new Iranian nuclear deal, the result of the planned naval war will be a higher price of oil. The main reason is to shut down Iranian oil exports to wreck the Iranian economy, to reduce the amount of money spent in Syria and Yemen.

The two edge sword would weaken Iran and the higher price of oil for Saudi Arabia, and for Zionist Israel, the Iranians out of Syria for the continued slaughter of the Syrian Christians. Out of a prewar population of 2 million, over 500,000 have been killed. This is the main Jew Sunni partnership, the kill off of the Christians.

Interesting how US Christians never say a word about the Syrian Christian kill off, it's ALL JU JU all the time. Sick isn't it?

In reply to by ne-tiger

I Am Jack's Ma… Countrybunkererd Wed, 05/09/2018 - 09:50 Permalink

With a very belligerent speech Trump nixed the nuclear deal with Iran. He also lied a lot in it. Neither is a surprise. The United States only keeps agreements as long as they are to its short term advantage - just ask native Americans. One can never count on the U.S. to keep its word.

Trump will reimpose U.S. sanctions on Iran because:

  • The nuclear deal was negotiated by the Obama administration and thus must be bad;
  • Israel wants to keep Iran as the boogeyman;
  • the Zionists and right wing nuts in the U.S. want the U.S. to attack Iran;
  • MAGA - Trump needs Iran as enemy of the Gulf states to sell more U.S. weapons.

 

Trump Ends The Nuclear Deal With Iran - What's Next?

In reply to by Countrybunkererd

Ghordius Took Red Pill Wed, 05/09/2018 - 09:47 Permalink

"Because Iran has dumped the petro-dollar and switched to the Euro."

do you have more then youtube videos to support that?

look, central banks and currencies do play an important role to all that. but taking them as an explanation to everything can lead you to very, very strange worldview. of the "the tail wags the dog" kind

(besides, the euro might explain the actions of some or all of 19 countries only, not of all of Europe. example: the UK does not use it)

In reply to by Took Red Pill

Ghordius Took Red Pill Wed, 05/09/2018 - 10:15 Permalink

thank you for the "Russia Insider" link. just read it

it does not support your theories in full. except that Iran would accept euros, which is not something that surprises... me

see my comment below. China and India, the two biggest customers, might be even willing to use euros for trade with Iran, but it's way easier for them to do it in other ways

see in this very article: "India initially paid Iran via a Turkish bank before routing payments through a domestic financial institution the last time sanctions were in place. The nation, along with China, also sought to get around the restrictions by trading oil with the Persian Gulf state for local currencies and goods including wheat, soybean meal and consumer products."

(India, Turkey, Gulf States... they all also accept gold, any time. The "Barbaric Option". But barter/credit systems are flexible enough)

Nope. Dubya was not after the EUR, not on top of his mind. He was after oil. And catering to the wishes of his friends, both domestic (oil megacorps, weapon smiths) and foreign (more oil megacorps, KSA, Israel)

In reply to by Took Red Pill

The Ram Took Red Pill Wed, 05/09/2018 - 10:58 Permalink

I don't think the US has a realistic chance to invade.  Iran: too big, borders Russia, supplies lots of oil to China.  The US does not have the forces to invade Iran.  You would be looking at 1M plus troops and a logistical nightmare.  Perhaps a huge airwar, but unlikely with Russia and China in the picture.  This probably goes the way of Syria....try to use some sort of 'color' revolution tactic to destabilize the Iranian government.  Very unlikely to work as the Iranians are not that stupid.  The people there have a history of US led 'regime change.'  We will see what happens, but the US has few realistic choices.  Mostly blowing a lot of hot air.  

In reply to by Took Red Pill

Crazy Or Not Took Red Pill Wed, 05/09/2018 - 16:24 Permalink

Likely US will take a second tier support role to Israeli and Saudi (seperate) actions. If US is to dip it's toe it will be in Yemen with SF troops doing some covert shit with photos that somehow "prove" what bad guys the Iranians are - and why we have to go after them. Saudi bomb runs (with US pilots) on training camps and Israeli radar jamming "take out the nukes" sortes to start..is my guess. There's some ramp up before US goes full retard on Ayatullahs.

In reply to by Took Red Pill

Rubicon727 Belrev Wed, 05/09/2018 - 12:30 Permalink

"Why does any country have to ask America's permission to buy oil from anyone?"

It's called "hegemony." A hegemonic power often controls all other currencies wherein countries must purchase/sell goods in that dominant currency. In this case the $$$. From that dominance, the US (in this case) earns lots of money that, in this case, goes into their military. The military (and a number of other factors) maintains its controls with military bases around the world. The US has several hundred, if not thousands of bases around the world. 

But such dominance does not last and that's what is happening with China, Russia, Iran, etc. With such suffocating dominance of the DOLLAR, these nations and others do not want to be enslaved by the $$$ and are seeking means of escaping this suffocating hegemony. 

General terms.

In reply to by Belrev

falak pema tmosley Wed, 05/09/2018 - 09:40 Permalink

so much for your pontificating about : the Duck will NEVER break with Iran and start a new war. He has started a new financial and trade war by rescinding on past US commitment. And it could spill over into a trade war with his Eurozone allies. If he goes Smoot-Hawley on global trade its "all options are open" type 1930 situation.

Who needs enemies when you have allies like that! 

In reply to by tmosley

Kayman falak pema Wed, 05/09/2018 - 12:18 Permalink

Who needs enemies when you can have Obama and Obama's diseases (currently ensconced in the US halls of covert power). Diseases that need to be cut out with a razor sharp instrument.

An "agreement" between Obumbler, the weak-kneed Europeans and Iran (and Iran's cheerleaders, Russia and China), never made into a treaty, isn't worth the paper it is written on. 

You, with your extra large brain, should know if Iran keeps heading nuclear (including delivery systems) then the Saudis will go nuclear. 

In reply to by falak pema

falak pema Kayman Wed, 05/09/2018 - 16:18 Permalink

If you want to avoid nuclear you have to cut the "nuts" of those who already are! 

Not want to rack your pea brain about those who might be.

Those who are are : US and Russia ...the others and not even close.

So... for nations who believe that nobody should rule alone we need USA and Russia to bring down their nukes to levels that make it unnecessary for others to "arm up"...

Simple really, you don't need a yuuuge brain to savvy dat! 

WHY DID DUBYA say in 2001 the US would rule alone?

Thats the original sin of this current conundrum that allows the Duck to say : I AM SUPREMO! 

The rest is just Oil monopoly games based on big stick massive overkill back up.

US sanctions' threat for trade with Iran by foreign corporates are based on US's "extra-territorial" law of 1996-- which only works "ONE WAY"... making other nations' foreign corporations having to pay for crossing the US imposed "red line" of $'s control of trade and financial deals..."exorbitant privilege" if ever it existed... that should come down as its unilateral and based on $ fiat blackmailing. The US has no right to impose sanctions for deals between other nations' corporates and Iran or any other country. They are not economic rulers of the world !

It will have to change this anomaly. The Duck has pushed the toxic cookie too far.

In reply to by Kayman

paulbain SoylentMagenta Wed, 05/09/2018 - 16:46 Permalink

 

 

 

 

SoylentMagenta wrote:

But which crypto? I haven't seen an Islamocoin yet. 

 

I suspect that it would be either Ether or Bitcoin CASH, NOT bitcoin, which is slowly dying.  And you can bet your freaking boots that it won't be Ripple, which is controlled by US banksters.

These days, the volume of bitcoin trading is declining apace, foreshadowing the collapse in Bitcoin's price before EOY.

 

 

 

In reply to by SoylentMagenta