How much oil will Iran export after US sanctions are imposed?

Iran

Published on Sunday, 30 September 2018 Back to articles

One of the major secondary US sanctions to be introduced on Iran is a ban on the purchase of Iranian oil, gas, and petroleum products starting on 4 November – when the second wave of sanctions is re-imposed.

The re-imposition of sanctions has already significantly undermined the Iranian economy and contributed to the collapse of the national currency. Even though the non-US signatories of the nuclear deal (France, Germany, UK, Russia, and China) have committed themselves to sustaining the deal, Iranian crude exports will be severely curtailed following the November deadline.

Iran has already lost some of its markets. In August, average daily exports fell to 2.1 million barrels per day (mb/d) – down from a peak of 2.8 mb/d in May 2018.

The global oil market has reacted negatively to the prospect of reduced Iranian exports, and experts estimate that prices will rise, especially as there is no expectation that the Organization of the Petroleum Exporting Countries (OPEC) will increase production to fill the gap.

What volumes of oil and condensate can Iran’s key customers therefore be expected to purchase after 4 November? The behaviour of the main buyers can be predicted based on recent trends. In 2017, the National Iranian Oil Company (NIOC) exported 24% of its crude and condensate to China, 22% to the EU, 18% to India, 14% to South Korea, 9% to Turkey, 5% to Japan, and 8% to other destinations. Iran has also offered some discounts and the delivery of crude using the National Iranian Tanker Company (NITC) fleet.

But Iran is likely to muster just 1.8–2.0 mb/d of crude exports depending on the changes made with the countries that import its crude. At a price of around US$80 per barrel, however, the country can still realise the oil revenues outlined in its annual budget.

The budget envisions exports of 2.5 mb/d of oil at US$55 per barrel, for daily revenue of US$137.5 million. A volume of 1.8 mb/d at US$80 per barrel would bring in US$144 million.

The key question is whether Iran can repatriate its export revenues after the next round of US sanctions. If the EU manages to establish a safe and independent channel for financial transactions, then the financial impact of sanctions will be limited.

The impact on the international oil market – and the negative psychological blow to the Iranian economy – will be considerable.

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