The US is pressing allies to completely halt their purchases of Iranian oil by the end of the wind-down period on 4 November
President Trump didn't disappoint. His lack of concern about the likely collateral damage from re-imposing sanctions on Iran meant that the latest curbs on the country's oil exports were always likely to be much tougher than the originals.
The US is pressing allies to completely halt their purchases of Iranian oil by the end of the wind-down period on 4 November.
Rather than make waivers of sanctions more difficult to get—the Obama administration required a 20 per cent reduction in purchases every six months—the Trump team has decided to ditch them altogether. This time, it's all or nothing. At least that's the narrative at the moment.
Anyone buying Iranian crude by November can expect to be shut out of the US banking system. Having failed to persuade the other parties to the Iran nuclear deal to abandon it, Trump has decided instead to bully them into acting the way he wants.
Oil companies, shippers and insurers can't afford to lose access to dollars or the banking system. Governments in Europe, Japan, India and South Korea are powerless to protect them—Iran's oil minister Bijan Namdar Zanganeh admitted as much when he spoke to Bloomberg TV in Vienna—and companies are halting purchases of the country's oil. Zanganeh said he didn't believe customers would be able to get waivers from the US that would let them go on purchasing cargoes. How right he was.
Even if China goes on buying, sanctions compliance by the rest of Iran's buyers would cut exports of crude and condensate—a form of light oil extracted from gas fields—by about two million barrels a day. That's going to be a tough hole to fill, as I warned here.
Was it any surprise that before the State Department started briefing on its sanctions plans it emerged that Saudi Arabia was aiming to boost oil production to a record level in July? Probably not. But that would still only offset about half the expected loss of Iranian oil by November. And then there are the other losses to consider.
Libya's oil production has fallen by 400,000 barrels a day after an attack on two of its biggest export terminals. The destruction of two more storage tanks will probably have a long-term effect on exports. Add to that the loss of 350,000 barrels a day from Canada after a transformer blew up at Syncrude Canada's oil-sands upgrader in Alberta and further declines in Venezuela, and it is easy to see another million barrels a day of outages that need to be offset.
The Kingdom's oil minister was at pains to assure reporters covering last week's meeting of OPEC and the wider OPEC+ group that Saudi Arabia and Russia, along with others that still had spare capacity, would boost output to fill the gaps.
He stressed that there would be no caps on individual countries' production that would prevent the group as a whole from adding the one million barrels a day needed to bring aggregate supply back to the level agreed in 2016.
That may not be enough. Expect the Energy Department to start dusting off plans to release crude from the Strategic Petroleum Reserve. And pray that the hurricane season is a mild one.