Baku, Azerbaijan, Aug.10
By Leman Zeynalova - Trend:
Iranian oil exports are set for a 'cliff edge exit' from the market in Q418, Fitch Solutions (part of Fitch Group), said in its report obtained by Trend.
“Production and exports have remained relatively unscathed in the wake of the US decision on May 8 to re-impose secondary sanctions on Iran. The first tranche of sanctions came back into force on August 7, with sanctions on purchases of Iranian crude set to follow on November 5,” said the report.
In July, total crude oil exports averaged 2.23 million barrels per day, which represents a 0.3 percent decline month-on-month, but a 5.4 percent increase year-on-year, according to Fitch Solutions.
“This suggests exports will face a sharper drop off in the coming months, as buyers move into compliance with US demands,” said the report.
The Fitch Group company believes that the composition of Iranian exports has begun to shift.
“China and India have been ramping up their imports, while purchases by Japan have remained broadly level. Europe and (to a much lesser extent) Turkey have been winding down trade, while South Korea has aggressively pushed its imports to zero. Although crude purchases are not yet sanctionable, buyers in a number of markets - in particular in Western Europe - have faced increasing difficulties in securing shipping and insurance services for their trades. These difficulties will only increase, as the November 5 deadline approaches,” said the report.
Fitch Solutions holds its core view that exports will decline by 1.3 million barrels per day by end-2019, although acknowledges major risks to the view.
“Under this scenario, China maintains imports at around their current volume, while India and Turkey make substantial reductions in order to qualify for waivers. Europe, Japan and South Korea reduce imports to low or near-zero levels. Significantly, this assumes that most buyers outside of China will opt for compliance with the US,” said the report.
“Somewhat counter-intuitively, we would view any strength in Iran's exports over September and October as a bearish sign. Buyers in a number of markets, including India and Japan have been seeking sanctions waivers. Qualifying for these waivers will require substantial cuts in their imports of Iranian crude.”
The company believes it seems unlikely that the Trump administration will grant those waivers unless importers demonstrate these cuts in advance.
“As such, we would interpret high or rising exports to any market outside of China as a sign that waivers are not likely to be granted.”
Follow the author on Twitter: @Lyaman_Zeyn