With Iran sanctions waivers set to expire in a few weeks, the Trump administration faces a difficult task.
Oil prices are once again on the rise, just as they were six months ago ahead of the original sanctions deadline. Back in October, the Trump administration buckled under the pressure of high oil prices – Brent was trading in the mid-$80s – and issued a series of waivers to eight countries, allowing them to continue to import oil from Iran.
After oil prices crashed, there appeared to be more room and more time for the U.S. government to tighten the screws. But with the May deadline fast approaching, the oil market is tightening again, a rerun for Trump officials who had hoped to get Iran’s oil exports to zero.
The Trump team has made their job on Iran a lot harder because of their bellicose approach to Venezuela. The attempt at regime change, which has consisted of harsh sanctions on PDVSA and Venezuelan oil exports, has knocked a significant volume of supply offline.
Oil prices have posted their best start to the year on record. Now comes the hard part. Eight countries received waivers on Iranian oil from the U.S. government, and three of them have since cut their purchases to zero, according to Brian Hook, Trump’s point man on Iran. “In November, we granted eight oil waivers to avoid a spike in the price of oil. I can confirm today three of those importers are now at zero,” Hook told reporters, without identifying which three. “There are better market conditions for us to accelerate our path to zero…We are not looking to grant any waivers or exceptions to our sanctions regime.”
Hook boasted that U.S. sanctions have slashed Iran’s oil exports by 1.5 million barrels per day (mb/d), more than half of the volumes that were being shipped prior to sanctions. While Hook did not identify which countries cut imports to zero, he was likely referring to Italy, Greece and Taiwan, analysts say. The bullish momentum behind crude prices likely means that the Trump team will extend waivers for the remaining five countries – China, India, South Korea, Japan and Turkey. Trump himself recently tweeted that it was “Very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high. Thank you!”
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When push comes to shove, Trump has made his desire for low gasoline prices clear. “In our view, there is also a growing recognition in the Administration that the Saudis are unlikely to come to the rescue with more production to offset prices – absent some supply crisis,” Joseph McMonigle of Hedgeye Energy Policy wrote in a note. Because the market is already assuming the waivers are a given, anything other than an extension would shock the market, McMonigle wrote.
“We believe waiver renewals are already priced into the market, and therefore any change in policy would be a surprise to the market and only help to overheat already rising oil prices. Therefore, we have a high degree of confidence that waivers will be extended for at least for the five countries utilizing them now: China, India, Turkey, Japan and South Korea,” he said.
Still, Iran’s exports could continue to post losses. Hedgeye says exports could fall from 1 mb/d to 800,000 bpd. By November 2019, when the next six-month waiver period expires, the Trump team may actually aim for zero exports.
The one thing working in Trump’s favor is that Venezuela appears to have stabilized output. President Maduro has managed to fend off regime change efforts, and opposition leader Juan Gauidó is on the backfoot. Oil exports dipped to 980,355 bpd in March, according to Reuters, down only slightly from February levels. This has prevented the Trump administration from achieving its goal of overthrowing Maduro, but, conversely, it gives the U.S. more leverage in its efforts vis-à-vis Iran.
However, with Brent nearing $70 per barrel, and U.S. gasoline prices approaching $3 per gallon nationally, Trump will likely hold off on taking a hard line.