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 Irans oil.
Crude prices have risen nearly 50 percent since Christmas, with WTI popping above $62.50 a barrel last week forthe 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.
Stepping On the Gas
Retail gas prices have soared in recent weeks, making it more difficult for President Trump to toughen sanctions
Source: Bloomberg, U.S. Department of Energy
Meanwhile, in the Persian Gulf, Irans 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 nations 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.
Americas squeeze on Iran nevertheless allowed some nations to purchase its oil,under a series of six-month-long waivers. These were grantedto eight countries, includingChina, South Korea, Iran, 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.
Path From Zero
Iran exported nearly 1.8 million barrels a day of crude and condensate in March
Source: Bloomberg tanker tracking
This trend contradicts Hooks 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 haventexercised 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.
Not Much Tougher
Production estimates suggest President Trump's Iran sanctions have been only marginally tougher than those of President Obama
Source: Bloomberg
Note: Production level vs average over 12 months prior to announcement of sanctions. Month 1 is the month in which sanctions were announced
President Trumps sanctions have been only slightly tougher thanthose 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 importantto the president and their recent rise must bea source of concern.
The deteriorating situationin two of the Shaky Sixoil-producing countries I identified a couple of weeks ago is also going to make toughening up the Iran sanctions more difficult.
Collapse
Venezuela's oil production fell below a million barrels a day in March as sanctions and power outages took their toll
Source: Bloomberg
Venezuelas 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 Venezuelas state oil company have accelerated the output decline, depriving Petroleos de Venezuela of its biggest buyer and the supplier of thelight oil it needs to dilute the extra-heavy crude it produces. Output will fall furtheras the political crisis drags on.
Libyas production is also at risk again as forces loyal to strongmanKhalifa Haftaradvance 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 countrys 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 andSouth 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 extensionof five of the eight the waivers, probably permitting reduced volumes of purchases for some, if not all.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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