"More and more countries are suggesting that they will stop buying Iranian oil. This is causing the Islamic Republic's exports to collapse and the global increase in oil prices. The prolongation of these negative trends is a growing risk of fuel price increases, also at Polish stations," writes Marcin Lipka, Conotoxia Senior Analyst.
It is no surprise that the sanctions imposed on Iran have reduced Tehran's oil production and thus restricted exports. Few observers, however, expected the scale of the fall to be so profound, even before the introduction of physical sanctions planned for early November.
Fewer and fewer countries are buying oil from Iran
South Korea has not imported oil from Iran since July. In the first half of the year, Seoul bought about 300,000 barrels of oil per day (b/d) from Tehran. This is a large customer, but it was not a serious blow to the Islamic Republic with foreign sales of "black gold" at a level of about 2.5 million b/d.
At the beginning of September, Japan also announced that it will probably not import Iranian oil. It had previously bought about 200,000 b/d, although in September the level of imports fell below 100,000 b/d, according to the Bloomberg tanker traffic monitoring agency.
In the last few hours, Bloomberg also announced that India is not planning to buy oil from Iran in November. This is a very serious problem for Tehran. Already in August, these purchases fell by half, and for the first two weeks of September, it was only 250,000 b/d. Meanwhile, in July, they imported almost 800,000 b/d of crude oil.
Interestingly, it is still unclear what the issue of importing oil from Iran by the European Union will be like (mainly by Italy, which has so far imported about 250,000 b/d) and, of course, by China (imports in the range of 700-800,000 b/d). It seems, however, that the sanctions will be much more restrictive than those imposed by Europe and Obama's administration before 2015. Iran is unlikely to experience greater problems with oil exports to Syria, Burma or Turkey, but these are relatively small buyers.
Tankers will be filled, but oil will not reach the market
A few months ago, it was estimated that Iran's exports and production would probably not fall by more than 800,000 b/d. Now, looking at recent market events, it is possible that Iran's foreign oil sales will fall by as much as 1.5 million barrels, that is by about 1 million b/d in mid-2019. (Facts Global Energy data published by the Financial Times).
This is a huge loss for the global market, especially as there are still 200-300,000 b/d from Venezuela (the IEA does not rule out a drop in production by Caracas to 1 million b/d, by the end of the year), and we are still faced with an unstable situation in Libya (production can suddenly fall by 300-400,000 b/d).
Another element of uncertainty in the market is the fact that for some time it will not be known exactly how much oil flows from Iran. Production may remain relatively large, but the raw material will not go to customers, instead it will be stored in tankers (several dozen Iranian tankers can hold over 100 million barrels of oil, according to FGE). In addition, Tehran has already started activities aimed at making it more difficult to track the flow of oil, as it is gradually switching off tanker transponders.
Switching off transponders may be aimed at circumventing sanctions. "FT" reminded a few days ago that in 2012, "some well-related businessmen and organisations have discreetly sold oil to help the government bypass sanctions". On the other hand, this may now be much more difficult, because of the more restrictive approach of the US than with previous sanctions.
Less oil in sales means higher prices at petrol stations
The threat of a much more serious reduction in Iranian oil exports than previously predicted, increases the risk of an unbalanced market. This will be particularly evident, if there are additional supply problems among the main producers (OPEC or Russia). Then the scenario of Brent oil growth above 100 USD per barrel, which is currently under discussion, would become very likely. This would also mean that fuel prices at Polish stations would start to rise to as much as 5.5-6 PLN per litre.
