COLUMN-In Iran oil sanctions poker game, Trump shows his hand, relies on other players: Russell
(Repeats with no changes to text. The opinions expressed here
are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, April 23 (Reuters) - U.S. President
Donald Trump has shown his cards on sanctions against Iran's
crude oil exports, but whether he has played a winning hand
depends on what the other players are holding.
The decision by the Trump administration not to renew any of
the waivers extended six months ago to eight importers of
Iranian crude, including top buyers China and India, is a clear
escalation of Washington's campaign against Tehran's nuclear
But Trump's move will only work in exerting maximum pressure
on Iran's leaders if a range of other parties decide to play
along, or at least defer to Washington's moves.
The first key reaction will come from the buyers of Iranian
crude, especially China.
China is on track to take 750,000 barrels per day (bpd) of
Iranian crude in April, or about half of Tehran's total exports,
according to vessel-tracking and port data compiled by
This is actually higher than the 500,000 bpd the world's
biggest crude importer bought in February and the 600,000 bpd
imported from Iran in March.
It may be the case that Chinese refiners are stocking up on
Iranian crude in anticipation of not getting any more from May
onwards, or it could be a sign that Beijing is prepared to defy
the United States on sanctions against Iran.
It's also quite likely that China's compliance with the U.S.
aim of reducing Iran to zero crude exports will become a factor
in the ongoing trade talks between Beijing and Washington.
If the Chinese decide they will comply and they halt all
purchases from Iran, it would be logical to expect that they
will demand concessions in other areas from the United States.
The same may be said for India, the second-biggest buyer of
Iranian crude with forecast purchases of 290,000 bpd in April.
India is also likely to want something in return from the
Trump administration, and similar to China, New Delhi also has
trade tensions with Washington, even if they haven't yet erupted
into a tariff war.
The second key reaction to the end of waivers will come from
Saudi Arabia and other allied producers in the Middle East, such
as the United Arab Emirates and Kuwait.
It's likely that Trump is betting the Saudis will prove to
be good allies and make up for the loss of Iranian exports,
perhaps with contributions from the region's other producers.
Iran is on track to export around 1.5 million bpd in April,
according to Refinitiv data, which is already well down on the
2.3 to 2.5 million bpd it was shipping prior to the renewal of
U.S. sanctions in November last year.
While it's quite possible for the Saudis to make up for the
loss of Iranian oil, they will no doubt be judging how much
extra oil to make available to the market.
For the Saudis that amount is enough to ensure that Trump is
appeased and that refiners, particularly in Asia, are
sufficiently supplied, but not so much as to cause prices to
So far the Saudis are playing it cool, with Energy Minister
Khalid a-Falih saying in a statement that the world's largest
crude exporter will "coordinate with fellow oil producers to
ensure adequate supplies are available to consumers while
ensuring the global oil market does not go out of balance".
If China and India, and the other smaller buyers of Iranian
crude, do play ball with the Trump administration, and the
Saudis and allies do pump up output to cover any shortfall, it
may be the case that Washington is playing a winning hand.
But that ignores that Iran has yet to fully show its hand.
It seems that while Washington is paying lip service to the
idea of negotiating a new nuclear agreement, the real aim of the
hawks in the Trump administration is regime change by forcing
impoverished Iranians to revolt against their rulers.
It's unlikely that Iran's leaders will choose to go quietly
and a desperate regime may decide to engage in conventional
warfare by trying to block the key oil channel of the Straits of
Hormuz, or use proxies to launch a terrorist campaign against
the United States and allies.
Perhaps the least likely outcome is Tehran sitting down and
agreeing to a new deal on Washington's terms, something that
would be humiliating, even if it would allow the survival of the
current political leadership.
While all these political calculations are being made, the
crude oil market is going to be making its judgment through the
price mechanism, with Brent jumping 2.9 percent on
Monday to close to $74.04 a barrel.
It's also likely that heavier grades of crude will
outperform lighter varieties such as Brent, given much of what
Iran exports is heavier crude.
Iraq's Basra Heavy, as assessed by Argus
Media, jumped 3.1 percent on Monday to close at $72.36 a barrel,
narrowing its discount to Brent.
While it's likely that world oil supply can match demand
even with the loss of Iranian exports, there could end being a
mismatch on the types of crude available and what refiners
Many Asian refiners prefer heavier crudes as they maximise
output of middle distillates, while much of the addition to
world crude supply has been lighter grades, such as U.S. shale.
It's not just politics that will determine if the United
States has outplayed Iran, if fuel prices start to rise because
refiners can't get enough of the right types of crude, consumers
will know where to direct their anger.
As a sign on the desk of former U.S. President Harry Truman
said: The buck stops here.
(Editing by Joseph Radford)
First Published: 2019-04-23 03:38:37
Updated 2019-04-23 14:00:00
© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.