A support vessel flying an Iranian national flag sails alongside an oil tanker as it prepares to transport crude oil to export markets in Bandar Abbas, Iran. (Photographer: Ali Mohammadi/Bloomberg)

Trump Seen Facing Rebellion From Biggest Iran Oil Customers

Subscribe to Bloomberg | Quint
The Daily Newsletter
News & Stock Alerts

(Bloomberg) -- U.S. President Donald Trump’s threat of sanctions against buyers of Iranian crude risks being batted back by some adversaries.

Some of Iran’s biggest customers will probably oppose U.S. sanctions, according to MUFG Bank. Shipments to top buyer China are seen staying the same, given being initially blacklisted didn’t stop its imports the last time restrictions were in place. Refiners in India, another major consumer of the Islamic Republic’s supply, say they can continue making payments for purchases as long as the European Union doesn’t impose curbs.

Trump pulling the U.S. out of the deal with OPEC’s third-biggest producer had been widely anticipated, and have sent oil prices to the highest levels since 2014. The renewed sanctions are intended to force Iran to renegotiate a 2015 agreement over its nuclear program the country’s leaders have said they will not revisit.

If the analysts are right and the world’s top crude buyers skirt the sanctions, the American withdrawal’s effect on the market may be more muted than what traders initially thought.

“I don’t see there’ll be a big impact from the U.S. pulling out of the deal,” Lim Jaekyun, a commodities analyst at KB Securities Co., said by phone from Seoul. “Iran can mainly supply China and India where demand continues growing.”

No Deals

Companies are no longer allowed to strike new deals in the Iranian oil and energy sector. In November, deals involving Iran’s oil and energy sector, shipping and ports, and insurance services will be prohibited. The U.S. advised countries that want to avoid sanctions on their financial institutions to reduce their volume of crude purchases from Iran during a 180-day wind-down period.

During the previous sanctions that began in 2012, refiners in Asia had to contend with international financial measures aimed at curbing the Middle Eastern nation’s nuclear program. They managed to keep buying limited volumes by seeking exemptions and arranging alternative measures for payments and shipping. This time, the U.S. pullout from the nuclear accord is unilateral, so the pressure may not be as strong.

“Chinese buyers may keep the status quo in buying Iranian oil just like last round of sanctions,” said Guo Chaohui, an analyst at Beijing-based CICC. “They were blacklisted before, which didn’t stop them. As long as it doesn’t expand to a U.S.- China trade level, everything will be the same.”

China has always opposed any country imposing unilateral sanctions against another nation, Foreign Ministry spokesman Geng Shuang told a regular news briefing Wednesday. Beijing is committed to maintaining and implementing the Iran nuclear deal, and will continue its cooperation with the Persian Gulf state, he said.

China’s Ministry of Commerce didn’t immediately responded to a fax from Bloomberg News seeking comment. A China Petroleum & Chemical Corp. spokesman didn’t immediately respond to emails or phone calls. A spokesman at Nam Kwong Group Co., which owns Zhuhai Zhenrong Co., a major Iranian oil importer, didn’t immediately respond to phone calls.

Keep Buying

China and India, as well as Russia and Turkey, will likely keep purchases of Iranian crude at current levels, Ehsan Khoman, Dubai-based head of Middle East and North African Research at Mitsubishi UFJ Financial Group Inc. (MUFG) said in an emailed note. Japan and South Korea may comply with the sanctions due to concerns they could lose the security umbrella provided by their U.S. ally against North Korea, he said.

What’s more, since the U.S. is alone in the withdrawal, the EU may not reinstate sanctions on shipping insurance, which were critical in disrupting exports last time, Khoman said. That means only as much as 350,000 barrels a day of Iranian oil may be removed from the global market this time, much less than the 1 million barrels during the last sanctions, he said.

Still, Japan plans to seek an exemption from the oil sanctions. The nation’s crude imports from Iran were 177,000 barrels a day last year, lower than levels before the previous measures were imposed, said Takashi Yamada, director of petroleum policy at the trade ministry.

©2018 Bloomberg L.P.

With assistance from Sungwoo Park, Tsuyoshi Inajima, Heesu Lee, Sarah Chen

Bloomberg
Stay Updated With Stock Market News on BloombergQuint
Subscribe to Bloomberg | Quint
The Daily Newsletter
News & Stock Alerts