Washington — The Trump administration's push to bring Iranian crude exports to zero officially begins Thursday, but analysts believe Iran will continue to export roughly 500,000 b/d through the early summer as the US, perhaps unofficially, allows certain buyers to continue their imports.
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"I expect that we'll see a fairly messy process over the next couple of weeks to two months where some countries will keep taking incoming [Iranian] tankers, but they'll be curtailing purchases," said Peter Harrell, an adjunct senior fellow at the Center for a New American Security and a former deputy assistant secretary with the State Department.
Last week, the US announced that Iran sanctions waivers, known as significant reduction exemptions, would expire May 2, forcing major buyers, including China and India, to choose between continued purchases of Iranian crude or sanctions from the US.
It remains unclear how aggressively the US may pursue potential sanctions violations and the Trump administration has given little insight into what it may allow when waivers end, declining to comment on questions such a crude sales made to cover debt or to compensate for equity production in Iranian oil fields.
"I think the administration, overall, probably doesn't mind this uncertainty and bit of chaos among the buyers of Iran crude," Harrell said. "The lack of certainty and the chaos probably drives up costs and creates headaches and that probably helps drive the exports down."
New waivers or other accommodations are still possible, analysts said, but administration officials have given no indication they are being seriously considered.
"We still see some room for pragmatism, but we aren't expecting broad White House accommodation," said Kevin Book, managing director of ClearView Energy Partners.
Instead, the administration will likely give Iranian crude buyers some leeway to wind down existing crude trade beyond Thursday, said Scott Modell managing director of energy consultancy Rapidan Energy Group.
Modell said he expects Iranian crude oil exports, which averaged about 1.7 million b/d in March, according to S&P Global Platts cFlow trade flow data and shipping sources, will fall to about 500,000 b/d in June.
In a note Wednesday, Paul Sheldon, chief geopolitical adviser with Platts Analytics, said he expects Iranian crude and condensate exports to fall below 500,000 b/d in the second half of this year, down from 1.3 million b/d in Q1 2019.
Sheldon said it was possible that the US may consider a "modest" waiver extension before June's meeting between OPEC, Russia and other producers where a decision on the current global supply cut agreement is expected.
"But consistent Trump administration comments leave little room for ambiguity, and the odds are high that most buyers will not call President Trump's bluff in any case," Sheldon wrote. "The rapid decline in Iranian exports after the US pulled out of the [Iran nuclear deal] in 2018 shows little appetite to risk exclusion from the US market and financial system, a dynamic which is unlikely to change."
Increased exports from Saudi Arabia, the UAE and Russia are expected to cover for at least some of the lost Iranian barrels, but China, Iran's largest crude buyer, may use oil in storage before requesting additional volumes from the Middle East, according to Book with ClearView.
"If Iran supplies 4% of China's consumption, import cover in Chinese stockpiles could accommodate a decent interval before Sinopec or CNPC phones the Kingdom for new volumes," Book said. "Oil from the Gulf takes longer than a Domino's pizza, but it stores better."
Sara Vakhshouri, president of SVB Energy International, said as much as 200,000 b/d of Iranian crude may continue to be smuggled in violation of US sanctions, based on flows the last time full US sanctions were imposed. In addition, Vakhshouri said, as many as 200,000 b/d of shipments to China and as much as 150,000 in shipments to India made as debt payments may be allowed to continue.
Analysts said it was unlikely this week that this arrangement would be allowed. A State Department spokesman declined to comment.
-- Brian Scheid, email@example.com
-- Edited by Richard Rubin, firstname.lastname@example.org