Baku, Azerbaijan, April 23
By Leman Zeynalova – Trend:
The US decision not to extend the sanctions waivers for Iran would affect the oil market situation unless Saudi Arabia, the United Arab Emirates (UAE) and OPEC step in to cover the shortfall which could be as much as 1 million b/d, Charles Ellinas, CEO of Cyprus-based energy consultancy e-CNHC told Trend.
“They appear to be willing to do so. But with the IEA forecasting that global crude oil demand will increase this year by 1.4 million b/d, in comparison the 1.3 million b/d last year, markets will be tight and jittery and prices will stay high,” said the expert.
Ellinas pointed out that the US Administration, through Secretary of State Mike Pompeo, specified conditions under which sanction waivers will cease.
“It now claims that these conditions have been met. A contributor to this is probably the knowledge that increased Saudi Arabia and US production will keep the lid on prices, something which President Trump is strongly advocating. But there is a risk that this may not work out as expected and prices may still be driven upwards, impacting the US and the already weak world economy<’ the expert explained.
He pointed out that with OPEC+ holding production down, and Venezuela and Libya in a downward production spiral, if Iranian oil exports decline further and are not replaced, not reissuing sanctions waivers will drive prices up.
“But as nobody really wants this, Saudi Arabia is very likely to intervene and increase production - particularly as it has reduced its own production quite deeply. But this risks affecting, or even ending the OPEC+ supply deal. Some of the shortfall will also be covered by increased US and other non-OPEC crude production, expected to reach 12.3 million b/d. Nevertheless, the likelihood is that prices will probably increase but within the $70-75/b (Brent) range,” added Ellinas.
The expert believes that for a start, Iran will not respond to the US demands as a result of this.
“Iran will probably work more closely with Europe and Russia to find ways to mitigate some of the effects of this increased sanctions impact. Europe has already set up alternative financial arrangements to facilitate oil trading, even if limited. It also depends how far China in particular, but also India and South Korea, go in complying with US sanctions,” the expert concluded.
The US State Department said that the country won’t issue additional reduction exceptions to existing importers of Iranian oil.
“United States will not issue any additional Significant Reduction Exceptions to existing importers of Iranian oil. The Trump Administration has taken Iran’s oil exports to historic lows, and we are dramatically accelerating our pressure campaign in a calibrated way that meets our national security objectives while maintaining well supplied global oil markets. We stand by our allies and partners as they transition away from Iranian crude to other alternatives. We have had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply. This, in addition to increasing U.S. production, underscores our confidence that energy markets will remain well supplied,” reads the message.
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