Washington/ New Delhi, May 9: Asia’s petroleum refiners are seeking alternative supplies as they prepare for renewed US sanctions against major oil exporters amid a tight market.
Iran is the third-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), which had recently ordered production cuts despite strong demand.
The United States plans to impose new unilateral sanctions after abandoning the agreement, which limited Iran’s nuclear ambitions in exchange for removing joint US-Europe sanctions.
New sanctions will likely include measures against Iran’s oil and shipping sectors, said Ehsan Khoman, head of research for Middle East and North Africa at Mitsubishi UFJ Financial Group, with 180 days for those industries to adjust.
“By declaring. the US will be instituting the highest level of sanctions against Iran – adding that any country that aids Iran will also be sanctioned – President Trump is clearly articulating that he has minimal desire in an alternative agreement with Iran,” Khoman said.
During the last round of sanctions, Iran’s oil supplies fell by around 1 million barrels per day (bpd), but the country re-emerged as a major oil exporter after sanctions were lifted in January 2016.
Unpopular move
Most US allies disagree with Trump’s decision to abandon the deal “President Trump’s decision to withdraw the US from the Iran nuclear deal. formally sets US Iran policy on a markedly different course to its European allies, who see the JCPOA as the best way to prevent Iran from developing a nuclear weapons programme,” said Peter Kiernan, lead energy analyst at The Economist Intelligence Unit (EIU). The governments of France, Germany and the United Kingdom all said Tuesday they wanted to stick to the deal.
Similar sentiments prevail in Asia. “Russia, China, Turkey and India will likely all oppose the sanctions and keep their current levels of Iranian crude purchases,” Khoman said. Japan’s Foreign Minister Taro Kono said on Wednesday that his country supported the agreement, which “helps to strengthen international non-proliferation and the stability in the Middle East.” He added that Japan would “carefully analyse the impact that this announcement would have.” Despite this, Khoman said, “certain US allies, including Japan and South Korea, may comply with the proposed US reimposition of Iranian sanctions on the concern of losing the US security umbrella vis-à-vis North Korea.”
Iranian crude oil shipments to Japan and South Korea have fallen by half from their post-sanction peak in March 2017, hitting just over 300,000 bpd in April, according to ship tracking data from Thomson Reuters Eikon.
China and India
The biggest single buyer of Iran’s crude is China, whose imports peaked at about 900,000 bpd in mid-2016 but have dropped to around 600,000 bpd in 2018, according to Thomson Reuters ship-tracking data. A senior official with a Chinese oil major, who declined to be named because he is not authorised to speak to the media, said new sanctions would hurt Chinese refiners by pushing up the price of crude oil, the most important feedstock for the petroleum industry.
After Trump’s decision to walk away from the Iran deal, Brent crude futures, the international benchmark for oil prices, rose to their highest level since November 2014 Wednesday, at $76.75 per barrel. But Chinese refiners said there were alternative suppliers, especially in Russia, Saudi Arabia and West Africa. “We are more worried about what such political action will do to the outright price of oil, rather than whether it will create a real supply shortage,” said another Chinese refining manager, who also declined to be named because he was not authorised to speak to the media. In India, refiners hope they can continue importing Iranian oil.
Reuters
