Iran is not short of heavyweight supporters following the decision to re-impose strong sanctions on the country by the US. Although Europe works to salvage what it can of the JCPOA, most likely going down the ex-US route, President Trump’s decision on 12 May will still likely cause a retrenchment of European investment into Iran given the far reaching implications for any company (US or not) with a connection to the country.
The Chinese and Indians see the sanctions as a massive opportunity to strengthen ties with Iran. Both countries had negotiated waivers under previous sanctions under a US diplomatic push. However, with trade tensions now in the mix, especially between the US and China, the latter could use this opportunity to secure additional oil supplies from Iran at improved pricing – an economic decision, but also to send a message to the US. Indian refiners have also agreed to double imports to 500,000 bopd under improved terms.
In April, China (re)launched its long awaited Petro-Yuan – Yuan priced oil futures. An experiment which China tried before and abysmally failed when retail punters had so much sway on volumes and caused such volatility in pricing, that the government had to step in and close it down. The story is different this time as the Petro-Yuan hopes to attract serious institutional traders. Iran should also be on board, having stated a desire to settle its trade in currencies outside of the US Dollar.
As a result, the sanctions may not have the full intended effect of fully taking Iranian crude off the market, especially if it can find willing buyers in the likes of India and China for its oil. The current oil price highs, hitting USD80/bbl on 17th May, may be short lived as the markets have priced in foamy speculation and geopolitical risk, and not looked beyond alternative buyers for Iranian oil or the ability of the other OPEC members to step up and compensate for any lost Iranian barrels.
Iran currently exports c.2mmbopd. The members to the JCPOA, the P5 + 1, comprises China, France, UK, USA, Russia plus Germany
