Tom Kirkman

How the Iran Sanctions Drama Intersects with OPEC-Plus

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While I don't agree with some of Pepe Escobar's views, I do enjoy reading his articles on global issues.  Good food for thought. 

Without further comment, I would recommend reading his latest piece on global oil & gas / OPEC+ and its intertwined geopolitics - there is a potpourri of items covered by Pepe here, including the rise of the PetroYuan:

How the Iran sanctions drama intersects with OPEC-plus

Major states buying oil from Iran are unlikely to heed the US call to drop imports; key allies want a waiver to avoid sanctions; OPEC, meanwhile, will have trouble boosting output in the short-term; the puzzle is not solved, but there are dark clouds

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How the US sanctions will impact iranian oil exports will depend on the 6 main iranian oil customers :

3 major customers : China, India and the EU

3 minor customers : Korea, Japan and Turkey



I've wrapped up some news here on the expected level of compliance of the iranian oil customers...



China looks set to defy U.S. calls to halt imports of iranian oil by November, potentially adding another source of friction to the already fractious trade relationship between Washington and Beijing.

"China and Iran are friendly countries to each other," the Foreign Ministry's Lu Kang told reporters Wednesday. "We maintain normal exchanges and cooperation on the basis of conforming to our obligations under the international law, including in the fields of economy, trade and energy."

Iranian President Hassan Rouhani attended Shanghai Cooperation Organization summit in China's Shandong Province as an observer at Beijing's invitation. He met there with Chinese President Xi Jinping, who pledged to expand economic cooperation between the two countries. China is among the parties to the nuclear deal.

Washington's use of the dollar as a weapon may not do much harm to Beijing. China in March launched yuan denominated oil futures to promote the currency's use in a market dominated by the greenback. Iran reportedly also accepted yuan payments from China for oil under similar sanctions in 2012.

Cut off from other export markets, Iran may sell crude for cheap to China, further exacerbating tensions between Washington and Beijing.



India hopes to avoid an abrupt end to oil imports from iran without triggering sanctions even as it readies a rupee payment mechanism for oil imports from the Islamic Republic. The US and India haven’t had any conversation yet on possible exemption but officials believe that the door for negotiations is still open despite strong words from the US recently to eliminate oil import from Iran.
The US and India haven’t had any conversation yet on possible exemption but officials believe that the door for negotiations is still open despite strong words from the US recently to eliminate oil import from Iran.

Officials see a window of opportunity because a recent update in the US treasury’s website lists circumstances in which the US government can waive sanctions.

The tough words from the US are certainly aimed at the better compliance of sanctions by all countries as w ..
The US and India haven’t had any conversation yet on possible exemption but officials believe that the door for negotiations is still open despite strong words from the US recently to eliminate oil import from Iran.

Officials see a window of opportunity because a recent update in the US treasury’s website lists circumstances in which the US government can waive sanctions.
It has been learnt that Nikki Haley, the US envoy to UN and close Trump aide, during her recent visit to Delhi called for cutting import of Iranian oil, but was politely told that it would be extremely difficult for India to make any significant cut. Ties between India and Iran range from the energy trade to connectivity projects, and cutting trade between the two countries could hurt India’s long-term interests, experts said.

Indian and US officials are likely to meet this month to figure out the implications of the Iran sanctions for India.

Meanwhile, India is preparing a rupee payment mechanism for Iranian oil import. “We are coordinating with the central banks of India and Iran to put together this mechanism. More than one Indian banks are available for this,” an official said.

During the last sanctions, UCO Bank alone handled rupee payment for oil imports from Iran. Part of the rupee payment was used by Iran for purchasing food, drugs and chemicals from India but most of it was transferred to the Islamic Republic after the sanctions were lifted in 2016.

It wasn’t clear if India would persist with imports from Iran if the US waivers didn’t materialise. During the last Iran sanctions, US had allowed India to import certain quantity for which the payments were made in the rupee. Officials didn’t say if the companies will be able to, or want to, use the rupee payment mechanism without the waiver because that could mean antagonising the US.

India’s oil ministry has told local refiners to get ready for a drastic reduction or zero oil imports from Iran, industry sources told Reuters on Thursday, a sign that India—Tehran’s second-largest oil customer—is bowing to pressure from the US to reduce imports from Iran.

India has asked refiners to be prepared for any eventuality, since the situation is still evolving. There could be drastic reduction or there could be no import at all,” one of the sources with knowledge of the matter told Reuters.

Some Indian refiners, Nayara Energy and Reliance Industries, have reportedly started to reduce Iranian oil purchases due to their exposure to foreign investors and to the US financial system.

India will not have problems replacing Iranian oil and could buy Basra Heavy Iraq, Saudi, or Kuwaiti oil instead, an Indian source told Reuters.



The European Union will press the U.S. to exempt European companies from the sanctions, an EU source familiar with the situation said. Brussels is also preparing to revive a so-called blocking statute that bars EU businesses from complying with sanctions imposed abroad by a third party. The EU seeks to maintain the nuclear agreement, to which Britain, France and Germany are signatories.

European refiners are cutting purchases of Iranian oil faster than expected as the U.S. prepares to reimpose sanctions on Iran, threatening a more severe impact than the last round of punitive measures in 2012 even though the EU has not joined in.

“These sanctions are going to be worse than under Obama. With him, you knew where you stood, how to navigate the sanctions…you never know with Trump. Everyone’s afraid,” one oil industry source said.

Swiss lender Banque de Commerce et de Placements (BCP) has told its customers that it would stop financing Iranian oil cargoes by June 30, two sources familiar with the matter said. BCP had said at the end of May that it would suspend new transactions with Iran and wind down activities. A spokesman declined to comment on the June 30 deadline. Customers of BCP include Greece’s Hellenic Petroleum, Total and Litasco, the Geneva-based trading arm of Russia’s Lukoil, several sources with knowledge of the matter said.

Some are looking for other banking options but the premium on freight rates for Iran, high official selling prices and Trump’s unpredictability have dampened enthusiasm and these refiners are not expecting to load again, sources said.

Litasco had a 300 million euro oil export prefinance deal with Iran but pulled the plug on the revolving credit when the new set of sanctions were announced, a source with direct knowledge of the matter said.

Spanish refiners Cepsa and Repsol have been using Madrid-based Ares bank but Cepsa will stop imports from early July, sources familiar with the matter said, as later cargoes had not been agreed prior to the sanctions announcement. Cepsa previously said that it would load crude until November and hoped for a waiver.

Europe accounted for about a fifth of Iran’s 2.5 million barrels per day of crude exports.



The Korean government did not confirm if the Trump administration made an official request that it stop imports from Iran. However, the Korean Ministry of Trade, Industry and Energy said it is currently negotiating with the U.S. government to get an exemption from the restriction, as it did in 2012. Iranian crude, which accounted for 9.6 percent of all crude oil imported to Korea in 2011 fell to 4.1 percent by 2015. Crude imports from Iran increased to 13.2 percent last year after the U.S. government lifted the sanctions after the Obama administration’s nuclear deal with Iran in 2016. South Korea’s oil imports from Iran could fall to the lowest in three years in September as buyers hold back booking cargoes, hoping for a U.S. waiver from sanctions on Iran..

Asian buyers are to notify the National Iranian Oil Company this week how much oil they plan to lift in August, but two of the three South Korean buyers have not submitted their nominations, said the sources who declined to be named as they are not authorized to speak to the media. “We don’t expect to receive any guidance from the government by then,” one of the sources said, adding the company has since decided to suspend Iranian oil loadings from August.

A source from a second buyer said it has no plan to lift oil in August. “The U.S. doesn’t want (countries) to do business with Iran, and we won’t do anything in violation of U.S. sanctions,” he added. A third buyer planned to suspend its term liftings after August due to the political uncertainty, a third source said. “We have contracted Iranian condensate cargoes that will be loaded in July and August but for contracts after that period, we’re not going to sign any because we don’t know how things will turn out,” he said.

South Korean buyers of Iranian crude and condensate are SK Energy and SK Incheon Petrochem, which are owned by SK Innovation, Hyundai Oilbank Corp and its subsidiary Hyundai Chemical, and Hanwha Total Petrochemicals.



Yoshihide Suga,  Tokyo’s chief cabinet secretary, told reporters that Japan is involved in talks now over the reapplication of US sanctions against Iran, but said he could provide few details. “We are watching carefully the impact that the US measures would cause,” he said in a daily press briefing. “We would like to negotiate with the countries involved so as not to have a direct adverse impact on Japanese firms.” Suga said that Japan would probably make its arrangements public in early August. Japan  will most likely fall in line as Washington could wield a big stick: blocking firms from the countries from obtaining bank credit.

Japanese refiners are ramping up purchases of U.S. crude as it becomes cheaper relative to their usual Middle East supplies and are assessing heavy grades from U.S. shale production as a replacement for supplies from Iran, industry sources said.

Post-sanctions Iranian oil exports to Japan peaked at around 700,000 barrels per day, down to about 500,000 bpd in 2017.



Turkey's foreign minister says his country does not have to abide by "unilateral" U.S. decisions on Iran, suggesting that Ankara would not cut off trade with its neighbor. Mevlut Cavusoglu spoke Friday after U.S. President Donald Trump's administration threatened countries with sanction if they don't cut off Iranian oil imports by early November. Cavusoglu said: "the fact that we are allies does not mean that we have to abide by all its decisions or all that it says word by word."

The decisions taken by the United States on this issue are not binding for us. Of course, we will follow the United Nations on its decision. Other than this, we will only follow our own national interests,” Turkey’s Economy Minister Nihat Zeybekci said, Oil Price reported. “We will pay attention so our friend Iran will not face any unfair actions,” he added

Turkey is also more reliant on Iranian oil than it might have been because plans to work collaboratively with Israel on a gas pipeline appear to have fallen off the radar as Tel Aviv turns towards Turkey's regional foes Cyprus, Egypt and Greece to work on new joint energy projects.


In conclusion we can see three groups :

Japan and Korea will comply with the US sanctions if they can't get waivers.

China and Turkey will resist US pressure and won't comply.

Europe and India hang in a middle zone with some will to resist the US pressure at a government level but a private sector affraid by the US sanctions.

Edited by Guillaume Albasini
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