News
08/11/24
Trump to zero in on Iran’s oil exports - will it work ?
London, 8 November (Argus) — Donald Trump's return to the White House poses
questions for the oil market, not least what it might mean for Iran's rising
crude exports. Early signs suggest Trump intends to dial up the pressure on
Tehran and its oil sales, but repeating the playbook from his first presidency
is unlikely to deliver the same result today. Iran's oil exports have been on
the rise since Joe Biden's election win against Trump four years ago. Before he
took office, Biden's talk on the campaign trail about wanting to revive the 2015
nuclear deal — which Trump reneged on in 2018 before reimposing sanctions on
Iran — created space for a relative easing of tensions. That, in turn, paved the
way for a recovery in Iranian oil sales. Iran's crude and condensate exports
were averaging below 500,000 b/d throughout the second half of 2019 and 2020 as
Trump-era sanctions took effect, but they began to tick up in 2021 and have
carried on rising ever since. Exports averaged around 1.6mn b/d in
January-October this year, according to data from analytics firms Kpler and
Vortexa, just 500,000-600,000 b/d short of what Iran was selling in the two
years before the sanctions were reimposed. Biden's detractors, many from across
the aisle, pointed to the recovery in Iran's exports as proof that his
administration was not properly enforcing the sanctions imposed under Trump, and
that it was intentionally looking the other way. Biden's team regularly
dismissed those claims, insisting enforcement was ongoing. The truth is that
there is a cat and mouse game between sanctions enforcers and countries under
sanctions. It took Iran 18 months to rebuild networks bypassing the sanctions
regime. Russia, subject to a less onerous G7 price cap, similarly figured out
ways to break through the sanctions noose. A batch of Iranian tanker-focused
sanctions imposed under Biden since late last year appears to have had an effect
on delivered prices to China, and yet Iran's exports have continued to climb.
Those were the days A second Trump presidency will bring an opportunity for
change. Given his first administration's hawkish stance towards Iran, there is
an overwhelming expectation that he and his new team will set out to tighten the
economic grip on Iran in an effort to limit Tehran's ability to financially
support its proxies in the region. The stated goal of Trump's maximum pressure
campaign in 2018 was to drive Iran's oil exports to zero, from above 2mn b/d.
And although it ultimately failed to deliver that, reducing exports to less than
a quarter of pre-sanctions levels still constituted success. However, repeating
that success in 2025 and beyond will be a tall order. Analysts canvassed by
Argus argue that pressing ahead with sanctions, even with stricter enforcement,
would at best deliver a limited reduction, largely because Iranian oil trade
today is not what it was in 2018. "Today, everyone who had been wary of the
implications of being involved has already left the game. And those who do
remain are those who do not necessarily fear sanctions," said Iman Nasseri,
managing director for the Middle East at consultancy FGE. In 2018, around-three
quarters of Iran's 2mn b/d or so of exports went to buyers in Europe,
Asia-Pacific, Turkey and the UAE. The rest was going to China, to a mix of
state-owned and private-sector companies. The threat of sanctions subsequently
deterred almost everyone from taking Iranian crude except for Chinese
independent refiners, pushing Tehran's exports below 500,000 b/d. Chinese
independents have since gradually increased their intake of discounted Iranian
crude to the point that they have been collectively taking around 1.5mn b/d in
recent months. The remaining 100,000-200,000 b/d has been going to Iran's allies
Syria and Venezuela. "With the majority of exports going to independent and
private players in China who are not really worried about sanctions, or exposed
to the US financial market, we should not expect a change in their behaviour,"
Nasseri says. "At best, we could be looking at a fall of 200,000-500,000 b/d"
owing to increased enforcement. Homayoun Falakshahi, senior oil analyst at
Kpler, also expects limited results should Trump choose to again focus his
efforts on sanctions and enforcement, unless he is prepared to work with Beijing
to put pressure on those independent refiners that are single-handedly keeping
Iran's oil lifeline open. "Trump could try to trade off the Iranian issue with
something of more significance to China," Falakshahi said, although he admits it
will be "very difficult" to convince Beijing. "There would be significant
pushback from Chinese officials, especially now, when refining margins are
weak," he said. "You would be taking out one of the cheapest feedstocks going to
Chinese refiners." Falakshahi sees no real impact in the short term, given the
vast and intricate network of middlemen and entities that Iran has built to
facilitate its oil trade in recent years. But the market "could see a decrease
of 500,000-600,000 b/d in Iranian exports" by the summer of 2025, he said. A
different approach Another challenge for the new Trump administration is the
speed at which Iran has been expanding its tanker fleet in recent years. Biden's
administration has responded with a record number of vessel-specific sanctions
this year. "And that could go further after Trump takes office," said Armen
Azizian, senior oil risk analyst at Vortexa. Some of the tankers that have been
sanctioned by the US are "having difficulties on the water", he added. "We've
seen cargoes on the water for longer, and some other tankers have been
restricted to domestic trade. If they were to sanction more VLCCs, you would see
an impact." Even so, Tehran still has plenty of opportunity to carry on
expanding its fleet. "Iran has been growing its dark fleet for two years now,"
Azizian said. "The average age of the VLCCs joining the dark fleet has been 18
years, and there are many candidates that could join over the next year. So,
while Trump could change how things are done, so long as Iran continues to
expand its fleet, it shouldn't have a problem continuing its trade." By Nader
Itayim Send comments and request more information at feedback@argusmedia.com
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