Gibraltar released the seized Iranian tanker that had been held up for several weeks, a move that could de-escalate tensions between Iran and the West. The tanker set sail for Greece.
The tanker was originally detained over what the UK said was a violation of European Union sanctions on shipping oil to Syria. It’s a complicated case – Iran denies that the tanker was ever heading towards Syria and claimed that the seizure was illegal. Shortly after, Iran seized a British tanker, escalating the standoff.
Ultimately, Gibraltar decided to release the Iranian tanker after receiving assurances that it wouldn’t head to Syria. Complicating matters further, a U.S. federal court issued a warrant for the seizure of the Iranian tanker last week, but was unable to convince British authorities. The latest turn of events offers further evidence that Washington and its European allies are not exactly on the same page, with the Trump administration pursuing “maximum pressure” while the UK and other European countries hope to find some way to de-escalate.
U.S. sanctions will continue to hamper the movement of these tankers. “To all intents and purposes, the US sanctions threat means that the oil on board is no longer available to any potential customers,” Commerzbank said in a note.
But Iran warned against further action. “If such an action is taken or even if it is stated verbally and not done, it is considered a threat against the maritime security in international waters,” Abbas Mousavi, spokesman for Iran’s foreign ministry, told a news conference.
The released tanker is only the latest twist in what will likely be an extended period of tension between the U.S. and Iran, one that has little chance of going away anytime soon.
Meanwhile, Iran’s foreign ministry said that the detainment of a British tanker was unrelated and still needed to go through court proceedings. Very few analysts, market watchers or western government officials buy the fact that the impoundment is unrelated; presumably Iran wants to hold onto the tanker for a little while longer as it mulls its options and next steps.
While this conflict plays itself out, the oil market is largely unmoved by the tension. Fears of economic recession continue to dominate, and as the economic outlook grows worse, so does the forecast for the 2020 supply glut.
With that said, oil prices moved up on Monday. The tanker standoff isn’t leaving traders impressed, but a drone attack on a Saudi oil field raised more alarm. The Saudi government said that the attack by Yemeni Houthi militants on the Shaybah field caused “limited damage,” while Saudi oil production and exports “remain uninterrupted.” The oil field has a production capacity of around 1 million barrels per day.
“The fire was quickly controlled and extinguished resulting in minor damages and thankfully with no causalities to personnel,” the Saudi energy ministry said in a statement.
Traders were clearly spooked by the drone attack, and the diplomatic battle over tankers in the Persian Gulf and the Mediterranean continue to attract global attention. But in terms of significance to the oil market these events pale in comparison to the outcome of the U.S.-China trade war. The oil market is well-supplied and even if a tanker or two is impounded, the effect is largely trivial so long as the tension stops short of military conflict and remains confined to these cat-and-mouse games over tankers.
Instead, the health of the global economy remains paramount. As a result, the fallout from the drone attack on the oil market will likely prove to be fleeting. One of the big reasons for Monday’s jump in oil prices stemmed from news that the U.S. government extended waivers on sanctions for companies doing business with Chinese telecom giant Huawei, which eased concerns about the trade war, if only temporarily. The Huawei decision “implies that Trump has had enough and he now realizes this is capable of drilling the global economy into the gutter,” Robert Yawger, futures director at Mizuho Securities USA in New York, told Bloomberg. “Speculators are jumping in and pushing oil along with every other risk asset.”