Washington — US President Donald Trump will essentially kick the fate of the Iran nuclear deal to Congress, urging lawmakers to stay in the agreement but to impose new triggers that would automatically snap US sanctions back into place based on Tehran's actions.
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For now, that means joint US/EU sanctions that stopped more than 1 million b/d of Iranian oil flows into Europe and Asia remain frozen.
But Trump's poor track record ushering his legislative agenda through Congress adds uncertainty.
WHAT ACTION IS TRUMP TAKING?
Trump will announce later Friday that he is not certifying Iranian compliance with the nuclear deal during Congress' latest 90-day deadline. But he is urging Congress not to abandon the agreement, known as the Joint Comprehensive Plan of Action.
The White House is also calling on Congress to hold off on reimposing sanctions, for now. Instead, it wants Congress to amend oversight legislation to include new trigger points that will cause the sanctions to snap back based on Iran's activities.
Trump certified Iranian compliance twice before, reportedly under duress, despite repeatedly bashing the Obama administration accomplishment as an "embarrassment" and the "worst deal ever negotiated."
Several top advisers urged Trump to certify compliance a third time to protect US national security.
WILL US/EU SANCTIONS SNAP BACK?
Sanctions on oil flows into Europe and Asia, largely suspended under the JCPOA, do not snap back into place as a result of Trump's decertification decision. In addition, sanctions on US imports of Iranian crude remain in place, as they have for the past 40 years.
The fate of the sanctions freeze appears to now rests with Congress.
An oversight law passed after the nuclear deal was reached gives Congress a way to fast-track legislation to reimpose the frozen US sanctions. Congressional leaders must introduce the legislation, and it would not be subject to a filibuster in the Senate.
Such a bill would receive easy approval in Congress, given the political liability of casting a vote that could be construed as supporting Iran.
HOW COULD NEW SANCTIONS IMPACT OIL FLOWS?
Analysts disagree on the impact of reimposed US sanctions, especially if European sanctions remain frozen. Some see a major impact on par with the pre-deal sanctions that could send prices soaring, while others expect many oil traders to find workarounds.
A freeze on Western sanctions since the nuclear deal took effect in January 2016 has allowed more than 1 million b/d of Iranian crude to return to the global market. The country is currently exporting about 2.2 million b/d. Iranian production has climbed to 3.83 million b/d as of September, compared with 2.91 million b/d in January 2016 when sanctions were lifted, according to S&P Global Platts survey data.
Alan Eyre, the Middle East and Africa affairs director in the State Department's Bureau of Energy Resources, has said the administration would apply any new sanctions in a way that would have minimal impact on the global oil market.
"Speaking generally, as we saw in the buildup of sanctions that helped bring Iran back to the table in 2010 and onwards, we in the government worked extensively with our allies around the globe to minimize any disruption to global markets," Eyre said.
Russian Energy Minister Alexander Novak told Business FM that everything depends "on the decisions that are taken."
"Iran is one of the countries that produces a lot of oil, it is a supplier to international markets," Novak said. "We remember that when sanctions were introduced, production volumes fell significantly."
Nobuo Tanaka, chairman of the Sasakawa Peace Foundation and former International Energy Agency executive director, sees a limited impact on oil markets if the JCPOA remains intact despite Trump's decertification decision.
"Many experts see that Iran would not abandon the nuclear agreement," he said. "If this is the case, there will not be much impact on oil markets."
HOW ARE IRAN'S OIL BUYERS PREPARING?
Asian refiners have started looking into contingency supply plans for 2018 term imports on the possibility of the US reimposing sanctions.
They are considering requesting extra force majeure clauses in term contracts with the National Iranian Oil Company, which had been the norm during sanctions, and turning more to spot procurements while trimming term commitments.
"I think many buyers would demand a risk discount" for 2018 term deals, said a condensate trader at a South Korean refining and petrochemicals company.
Kevin Book, a managing director of ClearView Energy Partners, said Iranian crude flows could shift from Europe to Asia if the US leaves the JCPOA and reimposes sanctions, just as they did in 2012-15 during the sanctions.
"Europe essentially zeroed out its imports, but the 'big four' Asian buyers never fully stopped purchases," Book said. "If similar dynamics were to govern this scenario, Iranian crude flows could shift from European buyers with low risk tolerances to Asian buyers with higher risk tolerances even as volumes -- and therefore global balances and benchmark prices -- remained essentially unchanged."
HOW WILL SANCTIONS IMPACT IRAN'S UPSTREAM?
A key concern for Iran is that possible US sanctions will limit further foreign investment in its upstream sector. It would also likely deter Western and Asian companies from bidding for oil and gas contracts.
Despite a gradual rise in output this year, Iran faces a tough task to increase production at a steady pace as its older oil fields urgently need investment and new technology.
Iran has already signed some new upstream development deals with international oil companies -- like Total, OMV, Eni, Shell, Schlumberger and Lukoil -- to study and potentially develop its massive oil and gas deposits. New US sanctions would further complicate those plans.
Iran's oil ministry this week prepared a $5 billion upstream rehabilitation spending plan to help reduce production loses, but without any foreign investment, it is unlikely to materialize.
Prequalified companies for Iran's oil and gas upstream projects include Total, Shell, Japan's Inpex and Malaysia's Petronas, Russia's Gazprom Neft, Rosneft, Tatneft and Zarubezhneft, and Azerbaijan's Socar.
WILL NEW SANCTIONS IMPACT IRAN'S LNG PLANS?
The return of sanctions could impact the development of Iranian LNG projects, which are dependent on Western technology and have been following an erratic and uncertain path for years.
Iran started gearing up for greater natural gas production after the sanctions were frozen. An Iranian oil ministry official said in July the country was aiming to have 365 million cu m/d of LNG available for export by 2021, eclipsing exports by Qatar, the world's top LNG player. Sanctions would put that target in jeopardy.
Still, the global market is oversupplied with LNG. Against that backdrop, a return to sanctions is not seen as threatening to future LNG trade, according to PIRA, a division of S&P Global Platts.
WILL US NGL, CONDENSATE SUPPLIERS BENEFIT?
Heavy-duty but routine maintenance currently underway in the giant South Pars offshore field in the Persian Gulf is providing something of a preview of what renewed sanctions could mean for US NGL and condensate suppliers.
As NGL and condensate supply out of South Pars has dropped sharply over the past month, price spreads for US condensate exports have opened. So US suppliers would be in a good position to help fill any gap caused by new or reimposed Iranian sanctions.
IS PIPELINE-DELIVERED GAS IN PLAY?
Potential impacts on Iran's gas sector would be limited because the country currently struggles to meet domestic demand.
Still, renewal of US sanctions could sidetrack various proposals in the works for a gas pipeline to Pakistan, India or both. The Pakistan project appears to have stalled in any case, with Islamabad shelving the proposed Gwadar-Nawabshah line on its side the border in June. But discussions have continued with India regarding a 1,300-km subsea pipeline.
Iran's immediate gas ambitions are more regional. It started gas exports to Iraq in June, adding to its only other major gas export market, Turkey. Iran's ability to meet both exports and rising domestic demand depend on further investment, particularly in South Pars.
WHAT DOES OPEC THINK OF TRUMP'S MOVE?
OPEC Secretary General Mohammed Barkindo said members were not discussing the prospect of increased sanctions, but "we stand in solidarity with all our member countries, all participating OPEC and non-OPEC countries in the declaration of cooperation. And we hope the world will also stand in solidarity with us."
Venezuelan oil minister Eulogio Del Pino said Trump's handling of the Iran deal points to a broader scheme by the US to target major oil producers like Venezuela, Russia, Qatar and Iran.
"It's a plan against all producing countries trying to displace our producing from certain markets to generate competition in several markets," Del Pino said. "That is very, very dangerous, what the US is doing. They are trying to protect local producers using financial schemes and using sanctions against countries."
--Edited by Richard Rubin, email@example.com