US President Donald Trump caught the oil market by surprise on April 22 by declaring that the US will end all Iran sanction waivers after May02,2019
The waivers, issued to eight countries for an initial period of 180 days when Washington imposed sanctions against Iran’s oil and shipping sectors starting November 5 last year, were widely expected to be renewed.
Iran has been exporting around 1.1 million b/d of crude and 200-300,000 b/d of condensates to China, India, Japan, South Korea and Turkey under the existing sanction waivers. Another 300,000 b/d of Iranian oil has been probably finding its way into the global markets by circumventing the sanctions, though the destinations are not known.
US President Donald Trump and US Secretary of State Mike Pompeo both expressed confidence that Saudi Arabia, the UAE and OPEC in general will help offset the loss of Iranian barrels from next month. Saudi Energy Minister Khalid al-Falih said the Kingdom will coordinate with fellow producers to ensure that the oil market does not go out of balance.
Iran, for its part, remained dismissive. Tehran again condemned the US sanctions as illegal, while its Islamic Revolutionary Guard Corps threatened to block the Strait of Hormuz, a vital passageway for nearly 20% of the world’s crude and refined products.
Will Iran block the Strait of Hormuz?
It’s an old, oft-repeated threat from Iran, but one that has never been carried out. The narrow waterway at the mouth of the Persian Gulf provides passageway to nearly 20% of the world’s crude and refined products consumption. The strait sees its share of naval drills and Iranian missile tests and has witnessed a stand-off between the US and Iranian navies in April 1988. However, it has never been blockaded. The latest threat from Iran’s Islamic Revolutionary Guard Corps, which was blacklisted by the US as a “terrorist organization” earlier this month, to close the strait, was an expected retaliatory move. If Iran does carry out the threat, it would trigger a full-fledged war in the Middle East. Aside from Iran, its oil-producing neighbours Iraq, Saudi Arabia, Qatar and the UAE rely on the waterway for inbound and outbound oil and gas shipments. The oil market is not pricing in such an eventuality yet.
What is the endgame?
The US wants to force Iran to the negotiating table over 12 key demands it had listed last year. These include Iran accepting new limits on its nuclear program, ending its ballistic missile testing, and halting interference in the affairs of its neighbouring countries. The Iranian government has so far scoffed at the idea, refusing to engage with the US. Tehran has also categorically said it will not contemplate any modifications to the nuclear deal, which it signed with the US, UK, Russia, France, China and Germany in 2015, bringing an end to years of stringent multilateral sanctions against it
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