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
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.
Why does any country have to ask America's permission to buy oil from anyone?
In reply to Iran is going hard into… by tmosley
They have the most bullie$.
In reply to BS by Belrev
"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 They have the most bullies. by FreeShitter
Oh Dear God. Anyone who can't see what is coming will look like the crying liberal children when Hitlery lost. I will check the link in a bit. On second thought, even seeing it coming, most will be like the crying leftist boobies...I mean babies.
In reply to So why does Europe back the… by Took Red Pill
sorry. Video starts here at beginning; https://youtu.be/VobUNfYwlss?t=1s
In reply to Oh Dear God. Anyone who can… by Countrybunkererd
I wish China/EU get together and call this bullshit.
In reply to sorry. Video starts here at… by Took Red Pill
Trump Ends The Nuclear Deal With Iran - What's Next?
In reply to Oh Dear God. Anyone who can… by Countrybunkererd
"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 So why does Europe back the… by Took Red Pill
I knew you were still lurking.
In reply to "Because Iran has dumped the… by Ghordius
Comes from Reuters if that's reliable enough. The video is from RT. I hear what you're saying but have you watched it Ghordius? It makes a lot of sense.
https://russia-insider.com/en/politics/iran-dumps-petrodollar-wants-eur…
In reply to "Because Iran has dumped the… by Ghordius
Do people think that getting to "and One ring to rule them all" will be fun and games?
In reply to Comes from Reuters if that's… by Took Red Pill
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 Comes from Reuters if that's… by Took Red Pill
I can't believe I just up-voted Ghordious. I'm writing it off to a well-timed glance at a broken clock.
In reply to thank you for the "Russia… by Ghordius
@Ghordius-"Nope. Dubya was not after the EUR"
another Reuters source;Iraq switches from petro-dollar to using the Euro to trade in oil in 2000. Less than 2 years later US invades.
http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/
Fast forward to today. Iran switches from petro-dollar to Euro in 2016. How soon until US invades?
In reply to thank you for the "Russia… by Ghordius
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 @Ghordius-"Nope. Dubya was… by Took Red Pill
I hope you are right! Iran has always been the big prize. The US has been messing with Iran since the 1950's. Now, Rudy Giuliani and John Bolton have been calling for regime change in Iran. And the US hasn't given up on Syria yet, either, although it's not going according to plan.
In reply to I don't think the US has a… by The Ram
+1
Accurate assessment. Iranian sovereign territory is the (true) 'red line in the sand' which will not be breached.
In reply to I don't think the US has a… by The Ram
havent been keeping with the news have ya? Iran did it on Sunday last week. Better start reading some RT man. it was ALL over it.
In reply to "Because Iran has dumped the… by Ghordius
The question is, which would you rather have ensuring the Iranian nuclear status, the hobbled IAEA or the US Navy nuclear ratline?
As to bringing down the Fed, let the Chinese use gold or yuan to buy oil. That wave will hasten the re-issuance of debt free United States Notes.
In reply to They have the most bullies. by FreeShitter
Because we threaten to withhold technological support - we will NOT let them have iphones and cable TV. So there you have it!
In reply to BS by Belrev
Because without the IOU Saudi Mercan toilet paper "currency reserve" petroscrip dollah, Slumville would turn to shit over night.
In reply to BS by Belrev
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 Iran is going hard into… by tmosley
What? There will be no war between the US and Iran.
Trump isn't Deep State, and anyone who thinks he is automatically disqualifies their opinions on everything related to geopolitics.
In reply to so much for your… by falak pema
....in that case they will need some bad ass Algo's.
What is an algorithm and why should you care? (video) | Khan Academy
In reply to Iran is going hard into… by tmosley
"Iran is going hard into cryptocurrencies as a way to bypass sanctions."
Got a link?
In reply to Iran is going hard into… by tmosley
https://www.financemagnates.com/cryptocurrency/news/iranians-buying-bil…
In reply to "Iran is going hard into… by Mustafa Kemal
But which crypto? I haven't seen an Islamocoin yet.
This is a good move by Trump to kill the waning petrodollar and trigger the next global crash that we desperately need.
In reply to Iran is going hard into… by tmosley
That's the billion dollar question, isn't it?
In reply to But which crypto? I haven't… by SoylentMagenta
Cut all funding to these Countries and Gut the UN...
What funding is China receiving from the US and what has the UN got to do with this?
In reply to Cut all funding to these… by Bill of Rights
>> what has the UN got to do with this?
USA is becoming a rogue nation.
US should withdraw from the the UN and the UN HQ should move to Hong Kong
In reply to What funding is China… by Los Llanos
I expect to hear that from Nikki Haley any time now. It'll be the big satan/little satan against the rest of the world.
In reply to Cut all funding to these… by Bill of Rights
Cut your "nuts" to feed your vanity?
Gut the UN, it will rise outside the US. And as collateral the petrodollar dies and $ gets weimar'd.
Then what?
You go carry your pitchforks to DC and act like the sans culottes of old?
Some shooting match in OK corral, with good ole 'Iran-contra' Ollie North as head of NRA !
In reply to Cut all funding to these… by Bill of Rights
"Gut the UN, it will rise outside the US"
you mean... "rise again"?
https://en.wikipedia.org/wiki/League_of_Nations
In reply to Cut your "nuts" to feed your… by falak pema
I mean the world is multilateralist and the US today is unilateralist.
So if the US walks away from FDR's invention, saying : its the devil in disguise.
Then the world will say : until a new hegemony arises (if it does) we have to avoid the big issues on which we agree; aka climate change, WTO etc...
And that means a new multilateral mechanism w/o the US.
Now the League of Nations was the response to WW1 dystopia which died after treaty of Versailles as that revanchard deal favored "nationalism", the rage of that age, which spawned WW2.
I don't know if mankind has learned a lesson. The Eu was created to avoid that disaster befalling a destroyed Europe post WW2... Now 70 years on, if the US goes isolationist, the ball will be back in the Euro camp along with Asia.
Will they fumble and fall or be able to run with it?
I have no idea, we can just hope !
In reply to "Gut the UN, it will rise… by Ghordius
We have employed the oldest idea ever created - divide everyone into polar opposites. Shia v Sunni (spiritual Islam v Literal Islam), Haves vs Have Nots (Mercantile nations vs consumer nations), Christians vs Muslim, Fox vs CNN, Repubs vs Dems, Conservatives vs Libs..... you will have to deprogram your minds to not let this rule your psyche.
And the serpent said to Eve, surely God did not tell you that if you eat of this apple you would die? Divide the mind into two distinct opposites-- The Logical / Rational component OR (not and) The Emotional / Intuitive component. Now you can be led anywhere.
Please folks - try and use both halves of you brains.
Ex NY Atty general Eric Schneiderman goes down swinging. He throws fellow j e w s Jason Epstein (Columbus Nova) and Victor Vecklesberg (Russian oligarch) under the bus before he goes. He broke with the tribe for once - to save his own skin. Didn't work.
In reply to I mean the world is… by falak pema
Fuck you and the UN...
In reply to "Gut the UN, it will rise… by Ghordius
Fuck off hippy you bore me. You don't like it here take your welfare kids and leave.
In reply to Cut your "nuts" to feed your… by falak pema
Lol. The older and more tired I get, I find that "fuck you" are two of the first words of the day from me as well.
In reply to Fuck off hippy you bore me… by Bill of Rights
If you do that when you first wake up and look in the mirror, worry. Outside of that, I think might be the new normal, unfortunately.
In reply to Lol. The older and more… by boattrash
Lol, Whats a mirror? It's usually when I walk down to the galley for my morning coffee.
In reply to If you do that when you… by Countrybunkererd
Dream on...the petroscam Saudi Mercan dollah is all but over. Now watch the EuroPeons give Slumville Don and his Tel Aviv Capo di Capos the stinky finger on this one.
In reply to Cut all funding to these… by Bill of Rights
They will continue to buy using currencies other than the $. This may hasten the relative decline of the US vs China.
the two biggest customers/consumers of Iran's oil are China and India
now, there is a country that is very important to both: Pakistan
it borders Iran, India and China (contested areas, note)
it used to be the US's BFF (even providing logistical support for the US presence in Afghanistan... until it did not)
now it's crawling with Chinese workers building railroads, highways and...
... pipelines
(and China has now a huge port concession in Pakistan, too, so that oil does not even have to be pumped all the way to Shangai, it can be shipped from there)
meh. someone is being duped, big time
Nobody paying attention to what just happened with CIPS this week.
Just a coincidence I'm sure.
The Baluchi oil pipeline to Gwahr is ready to pump.
Shutting the stable door with the horse out free.
In reply to the two biggest customers… by Ghordius
China, India, and Pak tell the US: Yes, please sanction Iran. We support you Mericans :)
In reply to the two biggest customers… by Ghordius
All in support of BB and the Wahabis: USSA's undoing.
"All in support of BB and the Wahabis"- A critical relationship most people fail to grasp. Israel and the Saudis share the same interests and goals, for different reasons mind you, but common goals nonetheless. Zios want to complete the Yinon plan, and the Saudis want to be the Arab hegemony. Iran stands in the way of both.
In reply to All in support of BB and the… by ultraticum
So, Japan may get a waiver, but the other 9 countries are probably going to give the U.S. some tough times, and the ones to do it would be China, India, Turkey, and South Korea. South Korea in particular with its ending of hostilities with North Korea, will put the U.S. on notice, that if normalization is to proceed, it must keep its oil trade with Iran, or for the U.S. to remove its military forces out of its country. There is no way the U.S. can extend sanctions to China, without having some severe economic repercussions to itself. Turkey and India will most likely tell the U.S. to shove it too.
The real lynchpin is the Petrodollar. The demand for the dollar is in decline, and the Chinese yuan is the challenger to the dollar. Many countries are lining up to buy their oil in other currencies, to circumvent any U.S. sanctions and the problems of devaluation of the dollar. The U.S. sanctions are only good, if everyone is trading in U.S. dollars. So, the Chinese have the upper hand on this, not the U.S.,.
Pagination