Lawyers from Seward & Kissel (S &K), in a bulletin, explain that all US sanctions in place prior to the JCPOA are “to be re-implemented no later than 4 November 2018 - with some coming back into effect earlier”.
Since crude oil is the major commodity linked to Iran, barrels of crude play a major role in the story. With the US being a major nexus for insurance and reinsurance, the renewed sanctions will drive such activities to the London, European or Asian markets for owners of vessels, or traders of Iran-linked cargoes, if they not already.
At the time of the prior deal, enacted when oil prices were in freefall and supply build was rampant, Iranian crude oil exports, which had dwindled down to 1m barrels per day (bpd) quickly ramped back up to levels approaching 3m bpd. These were boom times for the tanker markets, as forward curves encouraged the marketplace to store crude oil.
This time around, the commodity environment is markedly different from that in 2015 - forward curves are sloping downward - with spot WTI above $71 per barrel, and lower prices in subsequent years. Geo-political worries - notably concerning Venezuela but also Saudi Arabia - come at a time when developed country demand is high- with the forward curves implying that the party may not last. Short term, though- the oil will move.
Monthly offtake of crude and condensates from Iran from Clipper Data
Brokers Cowen & Company, who closely follow the energy sector, and its listed equities, said, in a report to clients: “While the US imports no oil from Iran directly, companies with key US assets or headquarters could be affected by unilateral sanctions. The volume of Iranian crude exports to major integrated oil companies, however, is relatively small, and it is likely that renewed US sanctions have a much smaller impact on oil supply than the pre-nuclear deal sanctions.” Integrated oil companies, which could fall victim at the sharp end of US sanctions, imported an incredibly small percentage of Iranian seaborne exports, Cowen, using data from Clipper, pegged this at under 5% of exported barrels. Moves to Asia have exceeded 60% or Iranian barrels in recent years.
At the high level, expect an even higher proportion of Iranian barrels going eastwards. S & K explains that: “Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran.”
There are important implications on the tanker front. Where major multinational oil companies, or other entities with a US nexus, which we can let the lawyers define, are chartering tankers, sanctions compliant vessels will be required.
Floating storage less of a factor
Oil storage is less of a factor than three years ago - with the implication that Iran’s tanker fleet would be available to handle its cargo moves - which was not the case in 2015 when most were tied up in floating storage. Indeed, analyst Fotis Giannakoulis, at Morgan Stanley, noted that “Floating storage in the Middle East is now 12.2m barrels below a year ago, a staggering ~75% YoY decline.” Thus, vessels now hauling Iranian crude may cease doing so- to assuage owners’ fears of being caught out by the new round of U.S. sanctions, but unlike 2015, there is ample Iranian flag tonnage to fill the void.