US sanctions on Iran will go back into force from November 5, meaning buyers have a six-month period during to “wind down” oil purchases. US Treasury Department has instructed countries to make significant cuts to their imports over the next six months to be considered for potential sanctions relief.
Here are winners and losers of the US re-imposed sanctions on Iran;
Winners – Nigeria, other OPEC countries, US Shale
OPEC, along with 10 non-OPEC allies led by Russia, are in the midst of a 1.8 million b/d supply cut agreement that is scheduled to run through the end of 2018, aimed at supporting prices and working down the glut of global oil inventories.
Any loss of Iranian barrels would squeeze an already tight oil market further. Thus, it is an opportunity for Nigeria and other OPEC members to ramp up production with attendant increase in revenue amidst spike in prices.
“Saudi will work closely with major OPEC, non-OPEC producers and with key consumers to mitigate the effects of any supply shortages”, Khalid al-Falih, Saudi Arabia’s energy minister said in a tweet.
Definitely, all producers will benefit from rising prices but US shale oil are in a better position to benefit more than OPEC countries. As oil prices are expected to increase next year, more shale drilling rigs will be deployed.
Losers: Iran, Key buyers, IOCs
Iran has boosted its oil production nearly 1 million b/d since the nuclear deal lifted Western sanctions in January 2016. It produced 3.83 million b/d in April this year, which is about 4 percent of the world’s oil. The country exports about 450,000 barrels per day (bpd) to Europe and around 1.8 million bpd to Asia.
Bijan Zanganeh, Iranian oil minister said President Donald Trump’s decision to quit a multinational nuclear deal would not affect Tehran’s oil exports.
“Trump’s decision will not have any impact on our oil export … that era is history now,” Zanganeh said.
Analysts think otherwise as an estimated 500,000 b/d of Iranian exports will be disrupted by November this year.
Key buyers of Iranian crude will also feel the impact as they will suffer when looking for new sources of supply. In the first quarter of 2018, China imports of Iranian crude averaged around 700,000 b/d, India imports ranged between 500,000 b/d – 700,000 b/d, South Korea imports was around 300,000 b/d. Other key buyers include; Japan with about 100,000 b/d, Turkey – 250,000 b/d, France between 70,000-100,000 b/d and Greece – 120,000 b/d.
Amongst the International oil companies (IOCs), Total’s South Pars phase 11 development will be heavily impacted. Total has spent a little under $100 million on South Pars so far out of a potential $2 billion budget for phase one of the project, which also involves China’s CNPC and Iranian company Petropars.
Apart from Total, Shell, and Japan’s Inpex are among dozens of companies to have signed memorandums of understanding showing willingness to develop giant Azadegan oil field ahead of a formal tender procedure. Italy’s Eni has also signed preliminary agreements with Iran.