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US says enough supply to offset Iran's crude

14 May 2018 17:54 (+01:00 GMT)
US says enough supply to offset Iran's crude

Washington, 14 May (Argus) — The US administration today told Congress enough crude supply is available globally to enable buyers of Iranian crude to significantly reduce imports from that country.

US sanctions on Iran's oil sector will go fully into effect on 4 November, following a decision by President Donald Trump to unilaterally withdraw from the Iran nuclear deal. But the US Treasury Department has advised foreign buyers of crude to start cutting imports now or risk facing penalties later.

The US legislation that implements that set of sanctions against Iran — the National Defense Authorization Act for Fiscal Year 2012 — requires the administration to consider the potential negative effects of the embargo on Iranian supply, including on the price of oil. The White House today told Congress that oil market conditions allow sanctions on Iran to proceed, citing a report prepared by the US Energy Information Administration (EIA) last month. The agency is required to compile such reports every 60 days. The administration has to inform Congress every 180 days whether oil market conditions allow sanctions to proceed.

The latest EIA report lists global production of petroleum and petroleum products, excluding Iran, at 92.4mn b/d while consumption is at 96.4mn b/d in February-March. It lists Opec surplus production capacity at 2mn b/d.

The White House said it has made use of other factors in its determination, including "global economic conditions, increased oil production by certain countries, the global level of spare petroleum production capacity, and the availability of strategic reserves."

The EIA's latest Short-Term Energy Outlook raised its Brent forecast by $7/bl to $71/bl in 2018, citing falling global oil inventories as a result of Opec/non-Opec production cut agreement, heightened perceptions of geopolitical risks and stronger economic performance globally. The agency said it would take into account Trump's decision to reimpose sanctions on Iran when it updates its short-term outlook next month.

The sanctions legislation re-activated by Trump threatens sanctions against financial institutions in countries that do not significantly reduce purchases of Iranian crude. The administration on 4 November, and every 180 days after that date, will have to determine whether foreign buyers have cut their imports from Iran significantly enough to qualify for an exemption from US sanctions. The US will make that determination on a country-by-country basis, even if buyers of oil are private companies.

US officials in 2012-15 employed an informal metric of a 20pc reduction in purchases each 180-day period to gauge whether reductions were significant enough.

Tehran said it will stay in the JCPOA so long as the remaining signatories provide "practical guarantees" that economic benefits to Iran will continue — guarantees that require persuading the US not to impose sanctions on foreign buyers.

Europe accounts for about 30pc of Iranian crude exports of 2.1mn b/d, with the balance going to buyers in the Asia-Pacific region. China, which is the largest buyer of Iranian crude by volume, says it will continue to buy Iranian crude despite the threat of US sanctions. European buyers also continue to take crude from Iran.

Trump said his administration would wield the threat of sanctions on European buyers to work jointly on a new, comprehensive deal with Iran. The EU foreign ministers are holding consultations on 14-15 May on possible ways to counter the effects of the US decision.

European buyers likely would be swayed by the threat of US sanctions regardless of the position of their national governments, former US State Department policy planning chief Jake Sullivan said today. But Sullivan cited Beijing's ability to counter Washington's threats in the ongoing trade dispute with the US as an indication that the US pressure on China with respect to Iranian imports would not yield the desired results.

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