US sanctions on Iran: May history of 2012 repeat itself?

Baku, Azerbaijan, Nov.5

By Leman Zeynalova – Trend:

Oil prices should recover once key events such as Iran’s deadline for oil sanctions and US mid-term elections are passed, since oil has corrected significantly on the back of perceived weak demand in the future, seasonal refinery turnaround and higher supply, the US JP Morgan Bank said in its report obtained by Trend.

“Recently US offered waivers to eight countries but did not name those countries. US state department mentioned that those eight countries have demonstrated “significant reductions” in their crude oil imports and made important moves towards getting to zero crude export target that the US has had in place from the very beginning. The announcement of waivers was bearish for oil,” said the report.

JP Morgan believes that the market participants are likely to have considered it as a sign of US position softening on Iranian oil exports.

“ On the contrary, we believe it was an indication of rewarding the countries for doing a good job in reducing their imports so far and giving them that “little bit more time” as they are very close (within weeks) to achieving those targets as per our understanding,” said the Bank analysts.

“As evident from last time, Iran did agree to discussion with US and other P5+1 countries after years of international sanctions and negotiations. Hence, the relatively tighter US sanctions under Trump administration should either bring them to the negotiating table fairly quickly compared to Obama administration or could push them in opposite direction where they could retaliate adversely. In either case, the risk to supply remains very high.”

The report recalls that in 2012, crude exports increased by 318 kbd in the three months after the US announcements in Nov 2011.

“The exports came off by 493 kbd by Jul’12 after EU imposed a ban on import of Iranian crude and as EU sanctions on shipping insurance started to bite. If history were to repeat itself, we expect oil market to tighten in the coming weeks as Iranian barrels become redundant and eventually decline as US commitment in reducing Iran’s oil-based revenues remains firm,” said the bank.

The US government's sanctions against Iran go into effect on Nov.5. The sanctions are designed to target Iranian oil exports and the country's financial sector.

The sanctions are aimed at dissuading third countries from doing business with Iran. While the US government has issued waivers to eight nations, including India, multiple European countries and Japan and South Korea have already stopped purchases of Iranian oil.

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Follow the author on Twitter: @Lyaman_Zeyn

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