The second wave of U.S. sanctions on Iran, effective from Nov. 4, aims to bring Iran back to the negotiation table for a new agreement with a larger set of terms, an expert from London-based consulting firm, Facts Global Energy, told Anadolu Agency on Monday.
Following the first round of the U.S. pre-nuclear deal sanctions on Iran which were enforced in August, a second phase of U.S. sanctions banning the purchase of Iranian oil and gas is expected to come into effect in November.
Iman Nasseri, managing director of Middle East department at Facts Global Energy, said the idea behind the re-imposition of this round of U.S. sanctions is to put economic pressure on the Iranian government.
The U.S. aims to 'bring the Iranian government back to the negotiation table for a new agreement with the U.S. and the world with a larger set of terms included in it,' Nasseri said.
'The idea is not really to attack Iran’s oil industry, but to cut Iran’s access to funds. And since oil brings the largest part of Iran’s foreign revenue, it’s the most important among all other sources of income,' he added.
In May, U.S. President Donald Trump unilaterally withdrew his country from a landmark nuclear deal signed in 2015 between Iran and the P5+1 group of nations -- the five permanent UN Security Council members plus Germany.
On July 2, the U.S. State Department announced its intention to reduce Iranian oil revenue to zero. Iranian President Hassan Rouhani had warned that if the U.S. halts Iranian oil exports, the region’s other oil-producers would suffer a similar fate.
The six parties remaining in the agreement -- Britain, France, Germany, Russia, China and Iran -- announced on Sept. 24 the creation of a 'Special Purpose Vehicle' to facilitate financial transactions with Iran allowed under the nuclear pact.
EU Foreign Policy Chief Federica Mogherini said the system, which will be set up by EU member states, will allow 'European companies to continue trade with Iran' and said the system 'could be open to other partners in the world.'
However, U.S. Secretary of State Mike Pompeo issued a stern rebuke to the countries remaining in the Iran nuclear agreement after their announcement of the financial system to bypass U.S. sanctions on Iran.
'This is one of the most counterproductive measures imaginable for regional and global peace and security,' Pompeo said.
'I do not think it is about a mechanism of trade or whether it is legal or illegal. The U.S. administration wants to put pressure on Iran using cutting its access to funds. Hence, regardless of how the companies trade or deal with Iran, the U.S. treasury will target those companies with any asset or financial tie or transactions with the U.S.,' Nasseri said.
Nasseri noted that if such a mechanism or system is in place and works, then it will help a little but not in any significant way.
'It will only help the small companies whose willingness or ability to purchase Iranian oil is small, but not the majors and big refiners or traders as they are all exposed to the U.S. financial system in a big way and will not take the risk regardless of what their governments do or want,' he explained.
- Iranian oil exports to decline
Iranian oil exports started to decrease on a monthly basis starting from April 2018, and this downward trend is expected to continue after the curbs take effect in November, according to data provided by Facts Global Energy.
'In our base case scenario, Iran’s oil exports [total of crude and condensates] will be around 1.3 - 1.4 million barrels per day (mmb/d) in November and December, falling gradually to less than 1 mmb/d by mid next year,' Nasseri said.
He noted that most of the exports post U.S. sanctions, however, will end up in China.
'We believe while many of the Iranian oil buyers will stop importing anything from Iran, as South Korean buyers have already done or French Total, some will continue to buy past the Nov. 4 deadline,' Nasseri asserted.
South Korea was the first country to completely halt its oil purchases from Iran following Washington's withdrawal in May from the 2015 nuclear deal, Kasra Nouri, director of public relations at Iran's Oil Ministry said, according to Iranian media outlets.
Nasseri declared that other countries with potential imports of much smaller volumes of around 1-3 cargos a month are India, Turkey and the United Arab Emirates.
- Oil prices to remain at $75-$85 per barrel band
Nasseri said that they are already assuming some 2 mmb/d drop in Iran’s total oil exports after the sanctions kick in, from some 3 mmb/d of total crude, condensates, and products, down to around 1 mmb/d.
'In this base case scenario, with increased exports out of Saudi Arabia and a few other OPEC members and Russia, prices will remain in the $75-$85 band in the fourth quarter of 2018 and 2019,' he said.
However, if any other major supply disruption occurs, such as a major drop in Libya or Nigeria’s production or exports, or any serious disruption in exports out of southern Iraq, or if the U.S. administration goes big on enforcement of sanctions targeting near zero exports, then it should be expected that prices will shoot up to $100 per barrel or more during the forecast period, he concluded.
By Ebru Sengul