WITH a number of ‘political decisions’ to be made, crude markets are in for some turmoil.

Markets are gauging the impact of the withdrawal of the Iran sanction waivers by the US administration. In case the Iranian crude exports literally get to zero, as President Donald Trump wants it to be, it would tighten an already tight oil market.

Would the withdrawal of the waivers mean Iranian crude exports would come to zero? No, it seems.

Iran will continue to export oil despite the US pressure, Iranian President Hassan Rouhani said in a live telecast last week. “In months ahead, Americans will see for themselves, we will continue our oil exports,” he said. If the United States is able to stop one method for Iran to export oil, we will find others, Rouhani added. Russian President Vladimir Putin is also conceding; he expected Iran to continue oil exports.

In the bid to bypass sanctions, last Tuesday, the National Iranian Oil Co offered 1 million barrels of heavy crude on the Iran Energy Exchange (IRENEX). Trading in crude oil is state-controlled in Iran, but to try and work around the US sanctions, the government last year started selling to private buyers through the exchange. Fars news agency reported that 70,000 barrels were sold at $60.68 a barrel. The name of the private buyer was not revealed.

The London-based Energy Aspects estimates, Iran would continue to export somewhere around 600,000 barrels per day (bpd) from May/June onward. This does not include another 100,000 to 200,000 bpd of crude that Tehran will be able to smuggle out, including the around 50,000 bpd that Iran was already supplying the Assad regime in Syria.

“Iran can continue cheating through various mechanisms, including ship-to-ship (STS) transfers, faking documents to obscure the origins of cargoes and switching off ship transponders. Smuggling of oil products is common, aided by the smaller cargo sizes, but getting large volumes of crude to buyers undetected would be much harder,” Energy Aspects, however, added. On the other hand, Energy Intelligence thinks Iran’s exports will fall to around 500,000 bpd or 55 per cent below last year.

China and Turkey are expected to keep purchasing Iranian crude. China is openly defying the US, suggesting it will continue to buy at least some Iranian oil (about half of Tehran’s 1.1m bpd exports have been going to them). There are some suggestions that despite opposition from Iran hawks in the administration, Trump may consider a special exemption for Beijing.

However, with 20m barrels of Iranian oil stuck at Dalian port in China for the past six months, awaiting clearance, would China be able to buy more remains murky?

Meanwhile, Turkey was also trying to convince the US to allow its biggest oil importer, Tupras, to continue buying from Iran. And, already there is an available mechanism set up by the Europeans for transaction and payment (to bypass US sanctions).

India is also seeking US permission to continue importing Iranian crude, Hindustan Times reported. The request reportedly came from Indian External Affairs Minister Sushma Swaraj in a discussion with US Secretary of State Mike Pompeo. Some reports are saying, India was also expecting a second waiver. Indian officials are also working to pay for Iranian crude in Indian rupees.

It is expected, China, Turkey, India, will use the next couple of weeks to negotiate new oil contracts with Tehran.

Will Saudi Arabia open crude taps or not remains another big if? Conflicting signals are coming from Riyadh. During an interview last week, Saudi energy minister Khalid Al-Falih hinted that the deal between producers to withhold output could be extended beyond June to cover all of 2019.

The comments by Al-Falih came despite the US pressure to raise output. And though Falih also added: “I confirm our commitment to meet all these requests (to replace Iranian oil), yet, he also underlined, “we will do this remaining part of the Opec+ deal, we will stick to it. We do not need to voluntarily exceed the limits set.”

With MBS dependent on President Trump’s support for political survival, will Riyadh be able to defy Washington’s dictates, remains anybody’s guess?

Venezuelan crude output is under a cloud. Prospects of any jump in Venezuelan output seem virtually impossible. Since markets have already taken into account the ongoing crisis in Venezuela, it is not having much impact on the crude price movements.

Crude markets are under pressure on several fronts — from Tehran to Riyadh and Washington to Caracas. Before projecting future market trajectory, answers to all the above issues are absolutely needed.

Published in Dawn, May 5th, 2019