US puts the squeeze on Iranian oil buyers

The world’s top oil buyers are discovering that US sanctions on Iran will squeeze their trade flows whether they agree with America or not.
It was only about three months ago that India’s foreign minister said that the country won’t adhere to unilateral restrictions and will continue buying Iranian crude. China also made similar comments and was said to have rejected an American request to cut imports. Japan and South Korea have held talks with the US aimed at securing exemptions.

Yet for all the pushback and negotiations, an emerging pattern shows US sanctions are succeeding in throttling Iran’s sales to its customers even before the measures take effect in early November. While America initially wanted a complete halt in purchases, traders are now concerned that even a revised aim for only cuts would take out enough supply to create a market deficit — which other producers may struggle to fill.
“All of Iran’s oil customers are affected by increasing US pressure to halt purchases, even as they request for concessions to cope with the consequences,” said Den Syahril, a senior analyst at industry consultant FGE. “We expect India and especially China to maintain some degree of imports, while buyers in Japan and Korea who’ve cut imports considerably will continue to aggressively seek waivers up till the last minute.”
Since the comments about opposing US sanctions, India’s imports from Iran have tumbled and it’s said to be mulling a 50 per cent cut in purchases. Latest data show flows to China, the top crude buyer, have also shrunk and the Asian country’s own tankers have stopped hauling supply from the Islamic Republic. Cargoes to South Korea plunged over 40 per cent in July, while Japanese firms have said September-loading shipments may be their last.

After continuing imports, albeit at reduced levels, the buyers must now contend with the ever-closer November 4 deadline, when the US will reimpose sanctions targeting Iran’s crude industry. Countries that deal with the Middle East producer after that will risk being cut off from the American financial system, unless they receive a waiver.
While a cargo would need to load only in mid-October to arrive in North Asia the following month, its purchase will have to be decided in September. With the US not yet saying whether it’s granting any nation an exemption, all shipments from Iran to its leading customers may be in peril starting this month. Even if the waivers are provided, they will be based on the promise of keeping flows limited.
FGE estimates Iran’s exports will slump to below 1 million barrels a day by mid-2019, while industry consultant Energy Aspects Ltd expects a plunge of 1.5 to 1.7 million in daily shipments by the end of this year from current levels of about 2.5 million. With concerns growing that global spare capacity will be stretched if other producers such as Saudi Arabia pump more to make up for the loss, the oil market is revealing risks of a crunch.
The market will look to other producers such as Russia to fill the void, even as Nigeria’s oil minister remains confident of Opec’s ability to pump more, said the Singapore-based analyst.
The Iranian rial’s decline continues

The Iranian rial has hit a record low against the dollar on the unofficial market on Tuesday (September 4), amid a deterioration in the economic situation and the reimposition of sanctions by the US. The dollar was being offered for as much as 138,000 rials, according to website Bonbast.com which tracks the unofficial market.
The rial also hit a record low on Monday (September 3), trading for approximately 128,000 to the dollar. The official rate, cited by the central bank website, is 42,000.
The Iranian rial has hit a record low against the dollar on the unofficial market yesterday, amid a deterioration in the economic situation and the reimposition of sanctions by the US. The dollar was being offered for as much as 138,000 rials, according to website Bonbast.com which tracks the unofficial market.

The rial also hit a record low on Monday, trading for approximately 128,000 to the dollar. The official rate, cited by the central bank website, is 42,000.