• ARI Media

Trump Cripples Iranian Oil Exports

Aggressive and undiplomatic, certainly, but also extremely effective. With nearly 50 days to go before new U.S. oil sanctions against Iran enter into force, President Donald Trump has already managed to crush the country’s petroleum exports, dealing severe economic damage to Tehran.

Iranian oil exports have plunged about 35 percent since April, the month before Trump ripped up the diplomatic deal that Barack Obama negotiated to curtail Tehran’s nuclear program and announced new oil sanctions.

“Iranian oil exports are coming down pretty hard,” said Roger Diwan, a veteran oil analyst at consultant IHS Markit Ltd.

The bigger-than-expected reduction, with more to come, is a win for Trump, who made a tougher stance on Iran a cornerstone of his foreign policy and imposed the sanctions despite opposition in Europe and open hostility from China and India, the top buyers of Iranian crude. When the sanctions were first announced, their unilateral nature prompted many in the oil market to question their effectiveness.

Oil accounts for nearly 80 percent of Iran’s tax revenue, according to the International Monetary Fund, making petroleum the regime’s economic lifeblood. As oil exports have plunged, Iran’s currency — the rial — has dived 60 percent on the unofficial market, pushing up inflation.

While the success of sanctions will help Trump put pressure on Iran, there may be a less welcome side effect: higher oil prices for U.S. consumers in the run-up to November’s mid-term elections.

The sanctions are reverberating through the global oil market, pushing benchmark Brent oil above $80 a barrel last week. Even though Russia and Saudi Arabia, which have cooperated closely in oil over the last two years, have offset some of the impact by boosting their own output, traders are betting it won’t be sufficient to replace all the losses from Iran.

“The physical market has clearly tightened, reinforcing the bullish narrative on geopolitical and supply risks,” said Thibaut Remoundos, founder of Commodities Trading Corporation Ltd. who’s been trading oil for more than 20 years.

It’s not just the headline oil price that shows the market impact of U.S. sanctions. As oil refiners from China to France scramble to find alternative supplies, they are pushing up the prices of crudes that can substitute for lost Iranian shipments.

Russia’s Urals blend, for example, is trading at its highest premium to the Brent benchmark since the beginning of the year. Chinese refiners recently bought large amounts of Urals from the port of Rotterdam, an unusually long voyage. Oman crude is also unusually expensive, and Basrah Light of Iraq is selling better than usual.

The unilateral American sanctions, which formally only take effect on Nov 4., have scared buyers in Europe and Asia, including Japan and India. In the first two weeks of September, Iran sold an average of 1.6 million barrels a day, down from 2.5 million barrels a day in April, according to Bloomberg tanker tracking.

A group of oil-market analysts predicted in April that sanctions wouldn’t cut exports by more than 800,000 barrels a day.

Even though European countries opposed Trump’s actions, and have reassured Iran’s government that they want the nuclear deal to continue, European refiners have had little choice but to comply with sanctions. Washington can cut off access to the U.S. financial system for any company judged to be doing business with Iran.

With early indications that European nations and Japan will stop buying Iranian crude altogether next month, the country’s exports can easily drop another 350,000 barrels a day by November, down to about 1.3 million barrels a day. South Korea, a major importer of Iranian crude in the past, hasn’t shipped any oil from Iran for 75 days.