The Trump government’s continued permission to export Iranian oil may be another catalyst for this year’s decline in oil prices.
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Brian Hook, the Trump administration’s special representative for Iran, refused to make clear over the weekend whether the White House would impose stricter sanctions on Iranian oil exports.
“We do not intend to grant any exemptions or exceptions to Iranian crude oil imports,” Hook said at the Atlantic Council Global Energy Forum 2019 in Abu Dhabi last weekend. But when asked by CNBC whether the government would extend the exemption, he said he could not answer the question:
“I can only say that we believe that when we have a better oil market, it will put us in a much better environment, thus speeding up the realization of zero Iranian crude oil exports.”
Market analysis points out that Hook’s comments indicate that the U.S. government’s decision to impose sanctions will depend to some extent on the price of crude oil.
Michael Cohen, head of energy market research at Barclays, said: “I think this administration has made it clear to some of us that there has been a relationship between oil prices and the implementation of sanctions for some time.”
Cohen had previously pointed out that crude oil prices below $60 a barrel would encourage the Trump government to impose more stringent sanctions to force buyers to cut off imports from Iran, while a rebound in oil prices above $80 a barrel could force the government to allow large quantities of Iranian crude oil to enter the market.
However, some analyses point out that the link between oil prices and exemptions from sanctions is to some extent a smokescreen.
Amos Hochstein, a former international energy envoy, said the real reason Trump’s government approved the exemption was that it could not reach an agreement with some of Iran’s biggest customers to stop buying oil from the Islamic Republic. Hochstein was responsible for sanctions against Iran under former US President Barack Obama.
According to Hochstein, this increases the possibility that the United States will be forced to sanction Chinese or Indian companies:
The reason is that if you don’t grant immunity and someone is importing, then you have to sanction them, and you may not want to sanction them.
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Hook had previously stressed that the exemption was intended to allow countries to continue buying Iranian crude oil as long as they proved they were reducing their purchases.
But Hochstein argues that these so-called exemptions actually encourage countries to continue buying Iranian oil:
If a country reduces its crude oil imports to zero, it will not be able to import Iranian crude oil again until sanctions are lifted.
The real question is not how much exemption you give, but how many countries continue to import.
China, India, Turkey and South Korea have imported crude oil from Iran since the resumption of sanctions on November 5, according to data from ClipperData, an oil tanker tracking company.
ClipperData said China accounted for the largest share, with crude oil imports of 576,000 barrels a day in December. South Korea resumed its crude oil purchases this month, with recent imports of 300,000 barrels a day.
Japanese economic news had previously reported that Japan intended to resume oil imports from Iran as early as this month.
Nevertheless, Reuters reports that Iran’s daily oil production has dropped sharply from 2.5 million barrels before sanctions began last year to less than 1 million barrels.
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