Washington — The goal of keeping oil prices in check was central to the US decision to grant waivers to the top importers of Iranian crude, President Donald Trump said Monday, as his administration pointed to rising production from the US, Saudi Arabia, Russia and Iraq that will fill an expected global supply gap.
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"I could get the Iran oil down to zero immediately but it would cause a shock to the market," President Trump said Monday. "I don't want to lift oil prices. As you've noticed, oil prices are going down very substantially despite the fact that already half of [Iran's] capacity is gone."
US sanctions against Iran's oil buyers went back into force Monday. Eight countries will be allowed to keep importing from Tehran in exchange for making cuts in the past six months and promising to cut further in the next six months.
Comments by Trump, Secretary of State Mike Pompeo and other officials show that administration officials have been keeping a close eye on oil prices, which spiked in early October in part because of its expected hard-line sanctions enforcement.
Front-month ICE Brent crude closed at $72.83/b Friday after eight waivers were announced, down $2.02/b from May 8, when Trump announced the US would exit the Iran nuclear deal and reimpose oil sanctions. Oil futures were trading higher Monday, around $73.50/b in the afternoon.
Concerns about a potential fourth-quarter supply shortage as a result of the sanctions were a key factor in Brent's rise to $86.29/b on October 3.
"We will ensure that as more barrels of Iranian crude and condensate come off the market, that we accomplish our national security objectives without increasing the price of oil," Brian Hook, head of the State Department's Iran action group, told reporters.
Hook said the administration is "highly confident that we will be able to substitute Iranian crude for other crude," pointing to increased output in Iraq, Saudi Arabia, Russia and the US, which have "more than covered the gap."
"And as more barrels of Iranian crude come off the market, we will be finding alternatives for nations," he said.
Pompeo announced Monday that Iran's top oil buyers including China, India, South Korea, Japan and Turkey can continue to import Iranian oil after Monday's resumption of US sanctions.
Italy, Greece and Taiwan also received temporary waivers to the US sanctions, while major Iranian oil importer UAE did not receive relief from the sanctions.
The countries receiving waivers have agreed to significantly cut those trades further by May, but the Trump administration is not expected to release individual targets.
Pressure on Iran's oil buyers ahead of the sanctions has already cut Tehran's exports by more than 1 million b/d, Pompeo said.
"Each of those countries has already demonstrated significant reductions of the purchase of Iranian crude over the past six months," he said. "We continue negotiations to get all of the nations to zero."
The eight countries imported an estimated 1.9 million b/d of Iranian oil in January-September 2018, just 20,000 b/d lower than their average 2017 imports, according to data from cFlow, S&P Global Platts trade-flow software. However, many of the countries ratcheted up Iranian imports earlier this year ahead of Trump's expected exit from the nuclear deal.
UAE, which many analysts expected to receive a waiver, imported about 126,000 b/d of Iranian condensate through the first nine months of 2018, up from 102,000 b/d in 2017, according to cFlow data.
"The UAE can easily replace Iran's condensate, even if they have to pay more for it," Matt Reed, vice president of Foreign Reports, a Middle East consultancy, said on Monday. "Clearly, Washington is counting on the Emirates to do its part when the leadership there is so vocally opposed to Iran's agenda in the region."
UAE's Emirates National Oil Co. imports Iranian condensate for its 120,000 b/d Jebel Ali refinery, which makes jet fuel and other products.
Elizabeth Rosenberg, director of the Center for a New American Security's energy, economics and security program, said that without a waiver, the UAE may be an initial violator of reimposed sanctions.
"It will be a target to watch for sanctions enforcement," Rosenberg said Monday. "It's a natural trading hub and transshipment and storage point. It would be difficult to see how the UAE does not get caught in the crosshairs."
Iraq, which imports Iranian natural gas for its power stations, has been granted an exemption for natural gas trade with Iran, Hook said.
"Iraq has been working with us on reducing Iranian influence and opening Kirkuk, which would be another 200,000 b/d of oil," Hook said.
The sanctions are expected to cut Iran's exports to 1.1 million b/d in November and December and to 850,000 b/d by the fourth quarter of 2019, compared with a six-month average of 2.4 million b/d earlier this year, according to S&P Global Platts Analytics.
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