Sanctions – Extreme Edition

6 Jul 2018; 

Most analysts, including ourselves in our Weekly Opinion of May 11 (“Iran Sanctions Snap Back”), expected the reduction in Iranian export to be gradual and limited.  We thought the reduction could eventually reach 500-600,000 b/d (from an average of 2.6 mb/d in 2018 YTD down to 2.0 – 2.1 mb/d).  However, an alternative scenario has been gaining traction, one where Iranian exports will be reduced even more than during the previous sanctions period.  Reports from the U.S. State Department indicate that the Trump administration is not just looking for reductions in exports, like during the Obama administration.  It aims to bring exports from Iran down to zero.  While this may not be a realistic expectation, the United States is expected to use its considerable leverage to force rolling reductions in purchases from all buyers of Iranian crude and waivers are conditional on immediate cuts.  The implications of deeper cuts into Iranian exports for the tanker market are uncertain; it depends to a large extent on which countries have the spare production capacity to make up the shortfall.  The ultimate impact on tanker ton-mile demand hinges on the resulting changes in tradeflows.

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