NEW YORK (Reuters) – Iran’s exports of oil to China, Europe and other countries will decline later this year and into 2019 if the United States can enforce President Donald Trump’s decision to reimpose the “highest level” of economic sanctions targeting oil trade with Iran.
Refining company sources said Asia’s petroleum refiners have shifted purchases to other exporters in preparation for the renewal of US sanctions against OPEC member Iran, which currently exports about 2.5 million barrels of oil a day, with China, India and other Asian nations the primary customers.
Mr Trump on Tuesday announced the withdrawal from the Iran deal, which was struck between major world powers and the Middle Eastern nation in 2015, and the renewal of sanctions to the “highest level” on Tehran.
“We’re expecting it to dissuade some buyers from purchasing Iranian crude,” said Bob McNally, president of consultancy Rapidan Energy Group in Washington.
The deal had limited Iran’s nuclear ambitions in exchange for removing joint US-Europe sanctions against the Middle Eastern country.
Iran now produces about 3.8 million barrels per day (bpd), accounting for about 4 percent of world supply. Any decline in shipments would not be immediate, as sanctions would not come into effect for 180 days.
US allies in Europe on Tuesday said they were looking to find ways to preserve what was left of the agreement.
European and Asian importers may, however, soon find themselves faced with the choice of doing business with the United States or Iran. “We think everyone is going to scramble to call the White House and get an exemption,” Mr McNally said.
The trajectory of sales could match what happened after tough Western sanctions were put in place in early 2012. Then, Iran’s foreign sales fell to just over 1 million bpd, with the majority coming from four buyers – China, India, Japan and South Korea.
Currently, the biggest 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.
Chinese refiners said Iran currently had a relatively small share in its supplies, and alternatives would be easy to find in Russia, Saudi Arabia, West Africa and the US.
International oil prices hit their highest since late 2014 this week on worries that revived sanctions would tighten global supplies. Moody’s Analytics said sanctions would reduce Iranian production by about 400,000 bpd.
The US may struggle to enforce sanctions against Iran to the same level as earlier in the decade. Then, the European Union’s support for the US’ measures made it difficult for refiners to transport and purchase crude.
This time, European countries do not support US policy. The governments of France, Germany and the United Kingdom all said on Tuesday they wanted to stick to the deal and urged the US not to obstruct that.
“What made the multi-lateral sanctions enforced during the Obama era so effective was precisely the fact that they were multi-lateral, whereas President Trump’s sanctions are not,” wrote Chris Lafakis, Moody’s chief economist.
