That hard line prompted many countries to scale back purchases quickly, said Richard Nephew, the lead sanctions expert for the U.S. delegation that negotiated the Iran nuclear deal. Nephew had originally expected the sanctions to shrink Iran’s exports by about 600,000 bpd.
Nephew says many of the “easy barrels” have come off the market, and the administration must now convince holdout countries to stop importing Iran’s oil over the next six months in time for the next review.
“May is going to be harder — a lot, lot harder, and what they do between now and then is going to decide if this is at all successful.”
In recent years, Iran has sold about 3 to 4 percent of the oil the world consumes each day. The threat of losing much of that supply helped push the price of Brent crude to nearly four-year highs above $86 a barrel earlier this month.
However, prices have plunged nearly $11 a barrel since then, knocked lower by a sell-off in risk assets, concerns about slowing global growth and confidence that OPEC, Russia and the United States will be able to keep the market supplied with crude.
Brent has now settled back into the $70-$80 per barrel range, where it has traded most of the year.
“That might even spur the administration, encourage the U.S. to take a tougher stance on Iran,” Vandana Hari, founder and CEO at Vanda Insights told CNBC on Monday. “So I think there might be another spike left in crude still. It’s not all downhill from here.”
To prevent price spikes, the Obama administration allowed foreign companies to continue buying Iranian crude so long as their country reduced its overall imports by 20 percent every 180 days. The Trump administration has been less transparent about how it will dole out sanctions waivers, leaving the market uncertain about how rapidly supply will drop after Nov. 4.
“So far no single country has actually been promised, let alone been given waivers, so I think that is still a wild card in the market,” Hari said.
It also remains to be seen which countries will skirt the sanctions, which have little impact on firms that don’t do much business in the United States.
China, Iran’s biggest customer, was still importing just under 450,000 bpd from Iran in September. However, the country’s two biggest refiners are not loading Iranian barrels for November because the Trump administration has not given them waivers yet, Reuters reported last week.
India imported nearly 600,000 bpd in September, though shipments have since fallen. The government is reportedly allowing state refiners to use Iranian tankers and insurers to import Iranian crude. India is also seeking sanctions waivers.
“The importance of China and India as destinations for Iranian crude has increased significantly over the past six months as many European and Asian OECD countries have either ceased or greatly reduced their requirements,” said Petro-Logistics CEO Daniel Gerber, referring to a group of developed nations.
“While Chinese and Indian purchases of Iranian crude in April represented slightly over half of all Iranian crude exports, this is likely to reach three-quarters in October,” he said.