Sanctions Will Create Oil Deficit

The world’s top oil buyers are discovering that US sanctions on Iran will squeeze their trade flows whether they agree with America or not.

It was only about three months ago that India’s foreign minister said the country will not adhere to unilateral restrictions and continue to buy Iranian crude.

China also made similar comments and was said to have rejected an American request to cut imports. Japan and South Korea have held talks with the US aimed at securing exemptions, World Oil reported.

Yet for all the pushback and negotiations, an emerging pattern shows US sanctions are succeeding in throttling Iran’s sales to its customers even before the measures take effect in early November.

While America initially wanted a complete halt in purchases, traders are now concerned that even a revised aim for only cuts would take out enough supply to create a market deficit that other producers may struggle to fill.

“All Iran’s oil customers are affected by increasing US pressure to halt purchases, even as they request for concessions to cope with the consequences,” said Den Syahril, a senior analyst at industry consultant FGE.

“We expect India and especially China to maintain some degree of imports, while buyers in Japan and Korea who’ve cut imports considerably will continue to aggressively seek waivers up till the last minute.”

Since the comments about opposing US sanctions, India’s imports from Iran have tumbled and it is said to be mulling a 50% cut in purchases.

Latest data show flows to China, the top crude buyer, have also shrunk and the Asian country’s own tankers have stopped hauling supply from Iran.

Cargoes to South Korea plunged over 40% in July, while Japanese firms have said September loading could be their last. After continuing imports, albeit at reduced levels, the buyers must now contend with the ever-closer Nov. 5 deadline, when the US will reimpose sanctions targeting Iran’s crude industry. Countries that deal with the Middle East producer after that will risk being cut off from the American financial system, unless they receive a waiver.