Slim hopes of oil sanctions relief dashed as US-Iran tensions escalate

Washington — Just over three weeks ago, a US-Iran prisoner swap appeared to signal a slight thawing in tensions between the two countries, leading some analysts to speculate that talks, even a potential easing of US sanctions on Iranian oil exports, might be on the horizon.

But after the Pentagon confirmed late Thursday it had killed Iran's top military commander, General Qassim Soleimani, in airstrikes in Baghdad, chances of sanctions relief appear thinner than ever and odds of a military conflict have increased as the US maximum pressure campaign against Iran has escalated faster than most anticipated.

"Just about a month ago the emerging conventional wisdom was that Trump would cut a deal with Iran that would add more oil to global markets," said Joe McMonigle, an analyst with Hedgeye Risk Management. "But our view is that Trump himself is the leading Iran hawk in the administration and therefore such a deal was highly unlikely. The US strike on Soleimani is further evidence of Trump's get tough policy on Iran."

Factbox: Oil market jitters return after Iran-US geopolitical risk rses

Related coverage: US sanctions on Iran

The killing of Soleimani, analysts said, shows the White House wants to escalate its conflict with Iran faster than most expected.

"Short of assassinating the Supreme Leader himself, the killing of Soleimani is the strongest possible step Washington could have taken to provoke Iran," analysts with Rapidan Energy said in a note.

Henry Rome, an Iran analyst with the Eurasia Group, increased the odds of a limited or major military confrontation between the US and Iran to 40% Friday, up from 20% on Monday.

Killing Soleimani may show a strengthening of US policy, but also shows in a clearer light than ever that the White House is not open to sanctions relief, analysts said.

"Washington appears to be hunkering down for the long haul," analysts with ClearView Energy Partners wrote in a note Friday.

US sanctions on Iranian oil exports have caused shipments to decline from about 1.7 million b/d in March to below 500,000 b/d in August, September and October, based on estimates compiled from shipping sources and cFlow, Platts trade flow software. Exports averaged an estimated 400,000 b/d in November, according to preliminary S&P Global Platts estimates.

In an interview with the Platts Capitol Crude podcast Friday, Behnam Ben Taleblu, a senior fellow with the Foundation for Defense of Democracies, said the record-breaking pace of US shale oil growth, coupled with recent, relatively stable oil prices, have bolstered the Trump administration's move to a harder line strategy against Iran.

The limited price impact of September's attack on the Abqaiq facility in Saudi Arabia, for example, "reinforced the Trump administration's position that you can afford to absorb this kind of cost ... and this kind of escalation," Taleblu said.

"The cost that the administration paid was more political and policy than economic," he said. "Americans didn't necessarily feel it at the pump."

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com