Washington — A global oil surplus has prevented a price spike from both the full reimposition of US sanctions on Iranian oil exports and from Iranian attacks on oil tankers in the Strait of Hormuz, Brian Hook, the US State Department's special representative for Iran, said in an interview Thursday with S&P Global Platts.
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"There's plenty of oil; Iranian crude is not exotic, there's plenty of compatible grades, Saudi is one of them," Hook said.
In April, when US Secretary of State Mike Pompeo announced that the US would not renew sanctions waivers to eight of Iran's largest oil buyers in May, he said the US would work with these countries to find alternative sources of oil.
But Hook said Thursday that with global oil supplies continuing to outpace demand, these buyers have not had difficulty finding replacement barrels.
"It has been the case that because we have such a well-supplied oil market that that has not been a concern that we have had to work through," Hook said. "There has been no interruption of supply, we have been successful."
The US Energy Information Administration forecasts global liquid fuels production to average 101.11 million b/d this year, about 110,000 b/d above demand, and then climb to 102.55 million b/d in 2020, about 150,000 b/d above demand.
Hook said that before lifting the Iran sanctions waivers in May, the US received assurances from Saudi Arabia and the UAE to offset the loss of Iranian crude and ensure a stable oil market. He declined to comment on specific commitments made by the Saudis or UAE but said those commitments have been "all part of the answer."
Shipments of Iranian oil fell to about 448,600 b/d in June from about 901,100 b/d in May and about 2.5 million in June 2018, according to data from S&P Global Platts trade flow software cFlow. China remains Iran's top customer, with about 200,000 b/d shipped to China in April and May and about 150,000 b/d in June, according to Platts estimates.
Hook declined to comment on China's imports, but said the country would be penalized if it imported Iranian crude in violation of US sanctions.
The Iranian crude shipped to China in June may not be illicit shipments and could stem from a transaction made between China and Iran before US waivers were lifted in May. The US has not publicly announced how it is handling the wind down of oil transactions with Iran and Trump administration sources said it could take as much as three months for oil purchases to be finalized.
Hook said the US expects China to zero out its exports of Iranian oil, but declined to comment on when US officials expect this to occur.
He said US oil sanctions are costing Iran $50 billion in annual revenue. "We are driving up the cost of Iran's foreign policy," he said.
STRAIT OF HORMUZ
On Thursday, President Trump announced that a US Navy ship shot down an Iranian drone in the Strait of Hormuz, calling the incident "the latest of many provocative and hostile actions by Iran against vessels operating in international waters."
Earlier Thursday, Iran's Islamic Revolutionary Guard Corps (IRGC) told state TV that it seized the MT Riah tanker and its crew of 12 on July 14 when on its way to deliver smuggled fuel taken from "Iranian boats to foreign ships in farther areas."
Hook declined to comment on the drone incident, but said the seizure of the tanker was another example of Iran's continued attack on freedom of navigation.
"It's different than putting limpet mines on the side of an oil tanker, but it is still an act of maritime aggression and it underscores the continuing threat that Iran presents to the freedom of navigation, which is a universal interest that nations of the world must defend," Hook told Platts.
Ship operators in the Middle East have been on high alert and insurance rates have soared since tanker attacks near Fujairah in May and June. The US has blamed Iran for the attacks.
On Friday, Hook said he will host a meeting with officials from nations around the world in what he called the first step towards a maritime security effort.
"This is the first step of presenting the concept of operations, but I can't underscore enough that this would be an international effort because a global threat requires a global response to protect freedom of navigation," he said.
Hook said the international community needed to work together to prevent both attacks on the Strait of Hormuz and other oil chokepoints.
"We do know that Iran is seeking to become a power broker in Yemen and it has long-term ambitions to threaten maritime security in the Bab el-Mandab, in addition to the Strait of Hormuz," Hook said. "It is important that the international community deny Iran... to increase their threats to other important waterways."
-- Brian Scheid, firstname.lastname@example.org
-- Edited by Wendy Wells, email@example.com