Unlike the 2012-2015 Western sanctions on Iran, this time around only the United States is slapping sanctions on Iran’s economy and oil industry. But unlike in the previous round of sanctions, the U.S. Administration has now expanded the scope of the petroleum products that fall under sanctions. This time, not only crude oil, but oil products will be affected.
Iran has already started to see the impact of the returning U.S. sanctions, not only on its crude oil exports, but also on its oil product flows.
While analysts and market participants are estimating how much Iranian crude oil will come off the market with the U.S. sanctions, signs have started to emerge that Iran’s refined oil products and condensate flows are also being disrupted, according to an S&P Global Platts analysis, citing trade and market sources and trade flow data.
Iran exports crude oil, condensates, and fuel oil, while it imports gasoline and gasoil.
In a factsheet about the new sanctions on Iran’s oil, the U.S. Treasury says that the scope of “petroleum products” includes—as defined by the U.S. EIA—“unfinished oils, liquefied petroleum gases, pentanes plus, aviation gasoline, motor gasoline, naphtha-type jet fuel, kerosene-type jet fuel, kerosene, distillate fuel oil, residual fuel oil, petrochemical feedstocks, special naphthas, lubricants, waxes, petroleum coke, asphalt, road oil, still gas, and miscellaneous products obtained from the processing of crude oil (including lease condensate), natural gas, and other hydrocarbon compounds.”
Over the past weeks, Iran’s oil product exports have also started to take a hit, according to Platts data and sources.
Iranian fuel oil exports to Singapore collapsed in August, a source in the Middle East fuel oil market told Platts, adding that fuel oil exports to Fujairah and Singapore are expected to slow down.
While Iran’s liquefied petroleum gas (LPG) exports in August jumped to the highest in nearly two years, mostly thanks to China which imposed tariffs on U.S. LPG, Tehran lost customers in East Africa—Kenya and Tanzania have stopped importing LPG from Iran due to the sanctions, according to Platts tracking data and sources.
Iran imports gasoline because insufficient refining capacity and the previous round sanctions had prevented it from expanding its refinery base. According to Platts sources, Iran’s imports of gasoline, which originate from India, North Asia, and South East Asia will be affected by the sanctions.
According to ship tracking data compiled by Bloomberg, Iranian oil and condensate exports were below 2.1 million bpd in August—the lowest levels since March 2016, with crude oil exports at their lowest since January this year.
Analysts expect the decline in Iran’s crude exports to accelerate this month and next, putting upward pressure on oil prices.
Bassam Fattouh and Andreas Economou at the Oxford Institute for Energy Studies wrote in a presentation in early September that they expect a total loss of 900,000 bpd of Iranian oil on the market.
The previous sanctions cut 1.22 million bpd of Iranian crude oil exports which averaged 1.1 million bpd between 2012 and 2015, the Oxford Institute for Energy Studies data shows.
But this time around, the oil market backdrop is quite different, with crude stocks below the five-year average and low spare capacity offering a limited buffer against other outages. So the price impact of the sanctions could be twice as large as in 2012, Fattouh and Economou argue. Within a year, oil prices could jump by $21 a barrel—all other things being equal—compared to around a $10-a-barrel price impact in 2012, they say.
Amrita Sen, chief oil analyst at Energy Aspects, expects Iran’s exports to drop by between 1.5 million to 1.7 million bpd from the 2017 average. Iranian oil exports should go from about 2.7 million bpd-2.8 million bpd from earlier this year to about 1 million bpd-1.2 million bpd by the end of this year, Sen told CNBC earlier this month.
With OPEC and Russia having already raised production, spare capacity in the near term is very limited, likely around 300,000 bpd, the analyst said, noting that if any sudden outage in unstable Iraq, Libya, or Nigeria were to occur, the market would tighten even further. As a result, Sen said, oil prices jumping into the $90s is a real possibility within the next few months.