Donald Trump’s 180-day waivers give Iran some breathing space
With eight of the countries Trump gave waivers to accounting for 80% of Iran’s oil exports, the markets calmed a bit (but probably not for long)
Melbourne — In the end, US President Donald Trump kicked the Iran crude oil sanctions can six months down the road, raising questions as to how the various players in the dispute will use the time.
The US government granted waivers to eight buyers of Iranian crude, exempting them from the sanctions that came into effect on November 4 that are aimed at reducing exports from the Islamic Republic to zero. The waivers will allow the eight countries, which include top buyers China and India, to keep buying crude for another 180 days, a move aimed at reducing the shock of a sudden loss of all Iranian exports.
There are a number of ways of looking at the US decision to grant waivers to countries, which, together account for some 80% of Iran’s total oil exports.
The first would be that Trump and his administration effectively blinked first in their dispute with Iran over its nuclear and missile programmes. It could also be argued that it was a rare example of “realpolitik” from the Trump administration, with the tacit recognition that cutting Iran’s exports to zero in one fell swoop would boost crude prices, hurting not only US consumers but also the rest of the world.
Trump was keen to talk up his administration’s capability of completely isolating Iran, but perhaps with an eye on the mid-term US elections on Tuesday, he made it clear that keeping crude prices low was also a priority.
“I could get the Iran oil down to zero immediately but it would cause a shock to the market. I don’t want to lift oil prices,” Trump told reporters on November 5 before flying to a campaign event.
The decision to grant the waivers has already calmed oil markets, which hadn’t really anticipated Tehran’s exports dropping to zero, but may have also been uncertain as to how much crude would actually be lost.
Brent crude closed at $72.13 a barrel on Tuesday, down 1.4% from the close on November 5, and down 15% from the four-year high of $84.79 reached on October 3.
Iran exports to recover somewhat
Tanker-tracking and port data suggests that Iran has already suffered a fairly steep drop in exports prior to the re-imposition of US sanctions. From about 2.6-million barrels per day (bpd) of exports in 2017, Iran’s exports dropped to about 2-million in recent months, according to Refinitiv data.
A further drop is on the cards for November, with the caveat that tracking Iran’s exports has become more difficult given that state-owned tankers are turning off their vessel-monitoring systems.
With the granting of the waivers, it’s likely that Iran will be able to keep its exports at least at about 1.1-million bpd, and possibly even as high as the 2-million bpd of recent months. For the Iranians, the 180-day waivers provide a financial lifeline and time to try and lobby support from other countries against Washington’s sanctions.
For major buyers such as China, which imported about 650,000 bpd of Iranian crude in the first 10 months of the year, the waivers allow it to maintain diversity of supply, as well as keeping prices lower.
With Iranian barrels still in the market, the pressure on other major exporters such as Saudi Arabia and Russia to ensure a well-supplied market — or risk Trump’s displeasure — is reduced. But they may not be happy if crude prices continue to weaken.
The big question is how does the Trump administration use the six-month window it has granted to Iran. Will there be any genuine attempts to find common ground with Tehran on the 2015 deal reached together with other Western powers to limit Iran’s nuclear programme?
Or will the US use the time to ensure it can enforce the sanctions when the 180 days expire, while not causing oil prices to spike?
It seems unlikely that Washington and Tehran could agree to re-work the nuclear deal in such a short time period, even if only relatively minor changes were made, similar to the re-worked North American Free Trade Agreement recently concluded by the Trump administration and Canada and Mexico.
In the meantime, the oil market can probably cross Iran off its list of worries, but pencil it back for sometime around April next year.