US SANCTIONS THREATEN TO CUT OIL EXPORTS BY IRAN IN HALF

▶ Output fell to 1.6 million bpd last month before restrictions returned to force Tehran to halt its nuclear plans

Iran’s oil exports could halve by the middle of next year from their October level as the US tightens the noose on Tehran through sanctions that will now focus on restricting crude revenue rather than imports by energy hungry countries, analysts said.

The Trump administration early on Monday reimposed oil sanctions against Iran after pulling out in May from the nuclear agreement struck between the West and Tehran in 2015.

However, the White House has granted waivers to eight countries to keep importing Iranian oil at reduced rates, reversing the previous strategy of aiming for zero exports.

Iran, Opec’s third-largest crude producer, in April exported a record high of 2.8 million barrels per day of oil, a figure that plummeted to 1.6 million bpd in October, said Iman Nasseri, managing director for the Middle East at London consultancy FGE.

“Now our forecast is that it will go down to one million bpd maybe by the end of this year or quarter one next year, and around 800,000 bpd by the middle of next year,” he added.

The consultancy has based its forecast on assumptions of the remit given to the countries that have procured waivers from the US administration.

China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea were granted exemptions by the US Secretary of State Mike Pompeo on Monday, but with the provision that they wind down their Iranian imports within a 180-day period.

The US Department of State is likely to revise the compliance of the exempted countries in reducing their Iranian exports significantly to allow continued imports from Tehran, according to another analyst.

“The US administration will look at how much each of these have been importing and how much they have cut,” he said. “They will look at the market condition and decide which ones to renew and if they renew, how much more they have to cut,” he said.

“The next set of waivers if they are renewed will be definitely for less volumes.”

Restrictions on Iranian supply ahead of the sanctions and the inability of sovereign producers to pump significantly more sent Brent prices rallying to $85 per barrel in the run-up to Monday.

The granting of the waivers and pledges from Saudi Arabia to fill any supply gaps has since led oil prices to hover around $75 per barrel.

While sanctions under the previous Obama administration restricted Iran’s export capacity to one million barrels per day, the Trump administration wanted to hurt Tehran further by reducing exports to zero, However, the strategy did not work because of limited spare capacity in global oil markets. Homayoun Falakshahi, senior upstream analyst at consultancy Wood Mackenzie, said that the latest wave of

sanctions was more focused on restricting Iran’s ability to earn revenues from the sale of crude and condensate and less on actually reducing its cargoes to nil.

Condensate is a light oil that is produced with gas and fetches a higher price than crude because it is easier to refine into high-quality products.

“The US has shifted its goal from zero exports to zero revenues, instead targeting the means Iran has to recover revenues from its oil sales,” he said.

Mr Nasseri agreed. He observed that any revenue Iran could potentially earn from the sale of its crude and condensate would go into an escrow account that would be closely monitored by the US government.

“They are not supposed to be used by the Iranian government or repatriated into Iran, the only exception is on humanitarian goods and non-sanctioned items, which is mainly the main food items,” he said. The other major difference to the sanctions under the Trump administration versus the ones enacted by Barack Obama are the curbs on sale of condensates, a commodity critical to Iran.

Iran is among the world’s top three condensate producers with output ranging between 700,000 and 750,000 bpd, said Mr Falakshahi.

Tehran is planning to increase condensate production to one million bpd by 2021 with new phases of the South Pars development, he added.

South Pars is the world’s largest gasfield, which Iran shares with Qatar, where it is known as North Dome.

With the lifting of nuclear-related sanctions against Tehran in 2016, Iran, which aimed to become self-sufficient in petrol, began ramping up development of its Persian Gulf Star condensate refinery on its east coast.

With the third phase nearly complete and sanctions now under way, state-owned National Iranian Oil Company may have limited options to sell the product

“The PGS refinery is expected to reach 480,000 bpd capacity in 2020, or close to half the country’s production,” said Mr Falakshahi.

“Until then, NIOC may have to store some of its condensate production in storage tanks, or at sea in tankers.”

Our forecast is that it will go down to one million bpd maybe by the end of this year or the first quarter next year IMAN NASSERI FGE managing director