The White House’s Apr. 22 confirmation that it will end all waivers from Iran oil sanctions when they expire on May 2 will help keep a carefully balanced sanctions regime in place, an expert suggested. “We still expect a minimum of 400,000-500,000 b/d to keep flowing because Iran has threatened to close the Strait of Hormuz if it’s cut off,” Sara Vakhshouri, founder and president of SVB Energy International, said on Apr. 22.
“It also needs that amount to pay for medical and other humanitarian services,” she added during her presentation on new energy security dynamics at the Institute of World Politics in Washington.
Vakhshouri basically described sanctions which are more practical than punitive because so many interests are involved. “The Trump administration has announced that it will release some crude oil from the Strategic Petroleum Reserve, but it doesn’t appear likely that it will try to completely stop Iran’s crude oil and product exports,” she said.
China and India likely will continue to be the primary destinations for Iranian crude and products, but probably won’t increase their purchases for several reasons, Vakhshouri continued.
“About 1,500 Chinese companies have applied for US tariff waivers, which means they don’t want to violate sanctions,” she said. “We also don’t think India would take more than 270,000-300,000 b/d of Iranian crude because that’s close to its domestic refining capacity.”
Iran also owns significant crude storage capacity in China, meaning that amounts there won’t be counted against sanctions because the crude is not withdrawn for use in China, Vakhshouri added. Iran also has owned the tankers which transport its crude to foreign customers since the 1950s when the first sanctions were placed on its exports, she pointed out.
“We know that Saudi Arabia and Russia will export more heavy oil to compensate for lost Venezuelan and Iranian exports,” Vakhshouri said. “US refineries are configured to take this crude, as are several in China, India, and Russia. It looks as if the global markets will be supplied.”
Sanctions specifics
The sanctions on Venezuela allow its oil to be exported, but under less favorable payment conditions, while sanctions on Russia do not target production, she indicated.
“Refineries in China, India, and the US are configured to process lower-price heavy crudes because they’re so profitable. Saudi Arabia has invested heavily in petrochemicals around the world, which puts it in an excellent position financially,” Vakhshouri said.
“We think the sanctions on Iran, Russia, and Venezuela are designed well enough that the markets will keep functioning well,” she maintained. New US production from the Permian basin isn’t likely to upset the balance because it’s lighter crude oil, Vakhshouri added.
