MOST analysts anticipate that US sanctions will lead to a gradual and limited reduction in Iranian crude oil exports, including Poten & Partners, the authors of this report published by London's Tanker Operator.
It was thought the reduction could eventually reach 500-600,000 barrels of crude oil per day from an average of 2.6 million barrels per day in 2018 year to date.
However, an alternative scenario has been gaining traction, one in which Iranian exports will be reduced even more than during the previous sanctions period.
Reports from the US State Department suggest that the Trump administration is not only looking for reductions in exports but also aims to bring Iranian exports down to zero.
While this may not be a realistic expectation, the US is expected to use its considerable leverage to force rolling reductions in purchases from all buyers of Iranian crude and waivers are conditional on immediate cuts.
The implications of further Iranian export cuts for the tanker market are uncertain; it depends to a large extent on which countries have the spare production capacity to make up the shortfall.
Iran has ample experience in dealing with various kinds of sanctions and even if the US applies maximum pressure on its trading partners, Iran will have options to keep at least some of its exports flowing.
For example, as sanctions start to bite, it will try to lure buyers with discounts and extended payment terms. To circumvent US banking restrictions, it could accept payment in other currencies or do barter deals and has already agreed to an oil swap with Iraq. Iran will also be using its own tanker fleet (one of the largest in the world) to move and store crude.
However, despite Iran's attempts to minimise the damage, early indications are not encouraging for the country. Most international oil companies, especially those with meaningful US operations, have already decided to steer clear from buying Iranian crude.
US allies like Japan and South Korea are under pressure to reduce their purchases. Indeed, South Korea has already dropped imports to zero. Turkey is also a significant buyer of Iranian oil and while they may resist pressure from the US to cut back, they don't have a lot of room to increase their purchases.
The two countries that could take more Iranian crude are the two largest current buyers - India and China. Combined they imported 1.4 million barrels per day over the past three months. India is more likely than China to reduce its imports from Iran under US pressure.
China, which is already embroiled in a trade conflict with the US has less incentive to comply and may import more (discounted) Iranian crude.
The only OPEC countries with significant spare capacity are Saudi Arabia, the UAE and Kuwait. Industry experts believe that these countries can sustainably increase production by 1.5 million to two million barrels per day within 12 months. Outside OPEC, Russian producers can reverse their voluntary cutbacks, which will add back 300,000 barrels per day.
The bottom-line is: it will be 'all hands on deck' for the producers with spare capacity, and in such a scenario, there is a risk of significant price increases.
It was thought the reduction could eventually reach 500-600,000 barrels of crude oil per day from an average of 2.6 million barrels per day in 2018 year to date.
However, an alternative scenario has been gaining traction, one in which Iranian exports will be reduced even more than during the previous sanctions period.
Reports from the US State Department suggest that the Trump administration is not only looking for reductions in exports but also aims to bring Iranian exports down to zero.
While this may not be a realistic expectation, the US is expected to use its considerable leverage to force rolling reductions in purchases from all buyers of Iranian crude and waivers are conditional on immediate cuts.
The implications of further Iranian export cuts for the tanker market are uncertain; it depends to a large extent on which countries have the spare production capacity to make up the shortfall.
Iran has ample experience in dealing with various kinds of sanctions and even if the US applies maximum pressure on its trading partners, Iran will have options to keep at least some of its exports flowing.
For example, as sanctions start to bite, it will try to lure buyers with discounts and extended payment terms. To circumvent US banking restrictions, it could accept payment in other currencies or do barter deals and has already agreed to an oil swap with Iraq. Iran will also be using its own tanker fleet (one of the largest in the world) to move and store crude.
However, despite Iran's attempts to minimise the damage, early indications are not encouraging for the country. Most international oil companies, especially those with meaningful US operations, have already decided to steer clear from buying Iranian crude.
US allies like Japan and South Korea are under pressure to reduce their purchases. Indeed, South Korea has already dropped imports to zero. Turkey is also a significant buyer of Iranian oil and while they may resist pressure from the US to cut back, they don't have a lot of room to increase their purchases.
The two countries that could take more Iranian crude are the two largest current buyers - India and China. Combined they imported 1.4 million barrels per day over the past three months. India is more likely than China to reduce its imports from Iran under US pressure.
China, which is already embroiled in a trade conflict with the US has less incentive to comply and may import more (discounted) Iranian crude.
The only OPEC countries with significant spare capacity are Saudi Arabia, the UAE and Kuwait. Industry experts believe that these countries can sustainably increase production by 1.5 million to two million barrels per day within 12 months. Outside OPEC, Russian producers can reverse their voluntary cutbacks, which will add back 300,000 barrels per day.
The bottom-line is: it will be 'all hands on deck' for the producers with spare capacity, and in such a scenario, there is a risk of significant price increases.