US sanctions against Iranian crude oil customers go back into force November 5 and the Treasury Department has instructed countries to make significant cuts to their imports over the next six months to be considered for potential sanctions relief.
Related feature -- Iran Sanctions: Global Energy Implications
Most analysts surveyed by S&P Global Platts predict the sanctions will remove less than 500,000 b/d of oil supply from the global market by the November enforcement deadline, ranging from 100,000-200,000 b/d at the low end and up to 800,000 b/d at the high end.
Iran has boosted its oil production nearly 1 million b/d since the nuclear deal lifted Western sanctions in January 2016. It produced 3.83 million b/d in April, according to the latest S&P Global Platts OPEC survey.
HOW MUCH OIL WILL LEAVE THE MARKET?
100,000-200,000 b/d of oil will leave the market by year's end, rising to 500,000 b/d in the first half of 2019 if the Iran nuclear deal parties do not reach a new agreement, said Bob McNally, president of Rapidan Energy Group and energy adviser to former President George W. Bush.
200,000 b/d of Iranian exports are at risk by the fourth quarter, said Paul Sheldon, chief geopolitical adviser for S&P Global Platts Analytics.
200,000-500,000 b/d of Iranian exports will be disrupted by November, say UBS analyst Giovanni Staunovo.
200,000-500,000 b/d of Iranian production will be shut in by Q1 2019, rising to 900,000-1 million b/d by mid-2019 if no new deal is reached, said Sara Vakhshouri, president of SVB Energy International.
Up to 450,000 b/d of supply will leave the market by year's end, said Kevin Book, managing director of ClearView Energy Partners.
500,000-800,000 b/d will leave the market by year's end, said Joe McMonigle, an analyst with Hedgeye Risk Management and former Department of Energy chief of staff.
WHAT HAPPENS DURING THE WIND-DOWN PERIOD?
Treasury set a 180-day period for companies to unwind transactions involving Iranian petroleum, petrochemicals, upstream oil investment, ports, shipping, shipbuilding and the Iranian Central Bank.
The State Department will consider granting sanctions relief to countries that make "significant reductions" in their imports every 180 days, although the evaluation criteria is expected to remain vague. The Obama administration look for 20% reductions, but took into account many other factors.
Key unanswered questions include what time period will be used for comparison and whether condensates count as part of a country's total reduction.
When asked if condensates would count, a State Department spokesman pointed to an answer in a recent briefing: "We're providing a six-month wind down for energy-related sanctions. So that's oil, petroleum, petrochemicals, and then all of the ancillary sanctions that are associated with that."
The US expects countries to start making significant cuts during the first 180-day period.
"For the initial set of such determinations, the State Department intends to consider relevant evidence in assessing each country's efforts to reduce the volume of crude oil imported from Iran during the 180-day wind-down period, including the quantity and percentage of the reduction in purchases of Iranian crude oil, the termination of contracts for future delivery of Iranian crude oil, and other actions that demonstrate a commitment to decrease substantially such purchases," Treasury said.
WHAT LEVEL OF IMPORT REDUCTIONS WILL THE US SEEK?
The Trump administration will likely grant Iranian crude buyers less leeway from sanctions that snap back in November than the Obama administration granted in 2012-15, but an oil price spike would force the White House to ease its enforcement, analysts said.
Oil prices around $80/b will likely make the administration comfortable pressing Iranian oil buyers to make additional reductions, predicts SVB Energy's Vakhshouri. But a price spike above that level would set off alarms in Congress as voters feel the pinch of retail pump prices during peak summer driving season.
Japan and South Korea could make the biggest relative cuts, while compliance by China, India and Turkey remains uncertain. While some European political leaders are looking legislation to block the US sanctions in their countries, low-risk-tolerance companies there are expected to comply to avoid getting cut off from the US banking system.
