- The United States has sought to maximize pressure on Iran by limiting its oil exports, but a tight oil market has left Washington constrained.
- Despite Saudi efforts to increase the kingdom's production, replacing the Islamic republic's output is no easy task and eight countries have been granted waivers to continue importing Iranian oil.
- Iran will feel the bite of U.S. pressure, making the few lifelines it has left crucial to maintaining stability.
The United States has now reimplemented some of the sanctions against Iran that were once lifted under the nuclear deal. As details trickle out about which countries have received sanctions waivers and how long the waivers will last, the effects of U.S. pressure on Iran are taking shape.
Currently, the available information provides a few key takeaways. First, it appears that Iran's oil customers are abiding by U.S. sanctions. Iran's overall export market could shrink from nearly 2 million barrels per day (bpd) of condensate and crude oil exports to just 1 million bpd. In addition, the waivers only extend for 180 days, after which the United States — which is internally divided over how aggressively to issue waivers — may push countries to further cut imports of Iranian oil.
Which Countries Received Waivers
In total, the United States awarded waivers to eight countries, though Washington appears to be requiring these countries to reduce their imports of Iranian oil by 40 to 50 percent. And these reductions will have an impact, as the countries receiving waivers together imported 1.681 million bpd from the Islamic republic between July and September of 2018. These are the countries that received waivers, and how those waivers are likely to affect their oil purchases:
- China: Beijing's waiver allows it to continue importing 360,000 bpd from Iran. China imported 660,00 bpd from Iran between July and September, so the sanctions require a 45 percent decline in imports.
- Greece: Athens was largely apathetic about receiving a waiver, and Greece's largest refiner, Hellenic Petroleum, has said it does not intend to enter into any contracts to purchase Iranian oil.
- India: New Delhi's waiver requires the country to reduce imports by 46 percent to 300,000 bpd, down from 560,000 bpd.
- Iraq: Iraq will not be permitted to import Iranian oil, but it has also been granted a waiver of sorts because Baghdad will be allowed to import much-needed natural gas and electricity from Iran.
- Italy: Iran's largest European customer has kept oil imports from the Islamic republic at an average of about 160,000 bpd in the past year. It is currently unknown how or whether Italian refiners will choose to use the U.S. waiver.
- Japan: Refiners in Japan have said they will boost imports of Iranian oil now that they have received waivers. Japanese companies cut imports down to just 20,000 bpd in September before the sanctions took effect, but averaged about 120,000 bpd in the six months before.
- South Korea: Conflicting reports from Bloomberg and S&P Global Platts have stated that South Korea will be allowed to import 200,000 bpd and 130,000 bpd, respectively. Seoul cut its imports of Iranian condensate to zero in September, though South Korean imports of Iranian condensate averaged 300,000 bpd in 2017 and the country will have difficulty finding a suitable replacement for its refiners.
- Taiwan: Like their Greek counterparts, Taiwanese refiners — including Formosa Petrochemical Corp., the country's only publicly traded refiner — have expressed interest in finding alternatives rather than continuing to import oil from Iran.
- Turkey: Little information is available on the amount of Iranian oil that Turkey will be permitted to import. Since May, Turkey has cut such imports to 130,000 bpd with the intent to secure a waiver at that level. Before making these cuts, Turkey had averaged 170,000 bpd of imports from the Islamic republic.
SWIFT Sanctions ... Sort Of
The United States has successfully pushed SWIFT, the worldwide financial messaging service that facilitates most global transactions, to disconnect Iranian banks from the platform. However, Washington only asked SWIFT to ban the financial institutions the U.S. Treasury Department has targeted with sanctions, leaving a few private Iranian banks untouched. This is crucial for Iran because, while the country's exports will suffer, the country will still be able to finance purchases of food, medicine and other unsanctioned goods that are crucial for Tehran's efforts to alleviate the economic and social pressure at home.
The Islamic republic still has some channels open to it, but limits exist. It's still difficult for trading partners to do business with Iranian companies and banks without running afoul of U.S. sanctions because their ownership and business networks can often be opaque. Moreover, the low level of Iranian oil that countries are permitted to import bears historic significance. The last time Iran's exports dwindled to 1 million bpd was in 2012, and the Islamic republic began skirting the sanctions. President Hassan Rouhani's election in 2013 quickly led to negotiations with the United States.