The deadline for the U.S. administration to decide whether to extend sanctions waivers granted to buyers of Iranian oil is now less than a month away, and President Donald Trump faces a tricky decision. He undoubtedly wants to increase pressure on the Persian Gulf nation, but in doing so he risks stoking oil prices and with them those all-important gas prices in swing states back home.
Brian Hook, the U.S. Special Representative for Iran, believes oil market conditions are better this year than they were in 2018 for accelerating the goal of “zeroing out all purchases of Iranian crude,” or so he told reporters last week. But the numbers tell a different story.
That is going to make it more difficult for Trump to go in hard on the remaining buyers of Iran’s oil.
Crude prices have risen nearly 50 percent since Christmas, with WTI popping above $62.50 a barrel last week for the first time in almost five months. Retail gasoline prices are on a tear, too. The latest data from the Department of Energy show gas prices up by 18 percent since late February, bringing them back to where they were this time last year.
Meanwhile, in the Persian Gulf, Iran’s visible exports of crude and condensate — a light form of oil produced from gas fields — have been rising steadily since the start of the year. Part of this increase may be due to more of the nation’s oil tankers sending out the radio signals that allow them to be tracked, after much of the fleet turned off transponders to disguise their movements immediately after sanctions were re-imposed. But customs data from importing nations show a similar upward trend.
America’s squeeze on Iran nevertheless allowed some nations to purchase its oil, under a series of six-month-long waivers. These were granted to eight countries, including China, South Korea, India, Japan and Turkey, as the restrictions were imposed in November. An estimated 1.76 million barrels a day of crude and condensate left Iran for those five countries in March, up from 1.42 million in February, according to Bloomberg tanker tracking.
This trend contradicts Hook’s assertion that the U.S. is “on the fast track to zeroing out all purchases of Iranian crude.” Three countries that got waivers have cut their purchases to zero, he added. In fact, those three countries — Taiwan, Greece and Italy — haven’t exercised their wavers at all since they were granted. Refiners in Greece and Italy have not received any Iranian cargoes since October, while Taiwan took its last delivery in September.
President Trump’s sanctions have been only slightly tougher than those imposed by his predecessor, despite offering fewer waivers. That will no doubt act as an additional spur for him to heap pressure on the country. But he is going to face difficulties if he wants to get much tougher on Iran next month.Gas prices remain important to the president and their recent rise must be a source of concern.
The deteriorating situation in two of the “Shaky Six” oil-producing countries I identified a couple of weeks ago is also going to make toughening up the Iran sanctions more difficult.
Venezuela’s oil production is said to have plunged by half during blackouts that rolled across the country last month. Heavy tar-like oil began to solidify in pipelines and tanks after heating systems lost power, causing substantial damage that could take months to fix.
Sanctions imposed on Venezuela’s state oil company have accelerated the output decline, depriving Petroleos de Venezuela of its biggest buyer and the supplier of the light oil it needs to dilute the extra-heavy crude it produces. Output will fall further as the political crisis drags on.
Libya’s production is also at risk again as forces loyal to strongman Khalifa Haftar advance on the capital, Tripoli, threatening a major escalation in violence. Output rose above 1 million barrels a day last month for the first time this year, after the country’s biggest oil field was restarted following a three-month armed occupation. That recovery is now at risk again.
There are two things Trump can do, and his national security team is divided on the course he should follow.
He can allow the unused Iran waivers to expire, claiming a tougher stance without actually affecting oil flows, and perhaps trim the volumes that the remaining countries are permitted to import. Expect particular pressure on Japan and South Korea, who may be more willing than the others to acquiesce to U.S. demands.
He can also continue to lean on Saudi Arabia and the rest of the OPEC+ group to raise output. The Saudis would be very happy to boost production at the expense of their rival, but they will be much less willing than they were last year to do that before seeing Trump actually impose tougher sanctions.
If he has to choose between lower gas prices and tougher Iran sanctions, domestic considerations will probably hold sway. Expect more tweets aimed at Saudi Arabia and OPEC, followed by an extension of five of the eight the waivers, probably permitting reduced volumes of purchases for some, if not all.