The US oil output cannot replace Iranian crude in the international markets following sanctions imposed on Iran’s key sector that are due to take effect on Nov. 5, the Oil Ministry’s former deputy director for OPEC affairs said.
“Such a scheme is not applicable in the oil market due to two reasons, one of which is oil quality that is a major hurdle, as the US oil is of light type, whereas Iranian crude is relatively heavy. The second obstacle is that the US administration cannot issue a decree to oblige private oil companies to sell their output to India, for instance,” Reza Modir was also quoted as saying by ILNA on Monday.
Modir added that in the first six months of the reimposition of sanctions on Iran, the US will be able to eliminate as much as 500,000 barrels of Iranian oil from the markets, which is far less than Iran’s total oil and condensates exports that currently stand at about 2 million barrels per day.
Iran's oil exports fell to their lowest in four months in July, S&P Global Platts estimates, as key buyers, namely South Korea and Japan, have started to curtail their purchases as the first set of US sanctions on Iran kicks in.
International analysts expect Iranian exports to drop by 500,000 to 1 million bpd after full US sanctions are reimposed in early November.
“In fact, the US will only be able to disturb the market balance, as oil supply is currently not high, raising the prices to above $80 per barrel,” he said.
American Consumers
All the oil consuming countries oppose the constraints on Iran’s oil sector, which can increase prices by at least $2-3 per barrel, Modir said, adding that the issue is also a source of dissatisfaction among American consumers who will feel the effect of oil price rise in gasoline prices.
“However, the US is putting a lot of efforts to ensure the buyers of Iranian oil that there will not be much turmoil in the market upon the reduction in Iran’s oil export,” he added.
The official noted that Iranian tankers’ traffic is projected to decline to two-thirds of the current level following insurance limitations, but it will have less influence in Asian waters.
“On the other hand, buyers will prefer to receive oil consignments at the destination ports [due to insurance sanctions], so that Iran would guarantee the cargoes and incur risks and costs,” he said.
Modir said the elimination of Iran’s market share will translate into a rise in oil prices.
