The Trump administration’s sanctions on Iran’s oil industry have only been in place for two and a half months. Still, traders and analysts are itching for information about whether the waivers, called Significant Reduction Exemptions or SREs, will be extended come May. The SREs were originally given to eight countries in November, allowing them to continue importing small amounts of Iranian crude for six months.
Many of the countries that received SREs had halted imports of Iranian oil completely prior to the implementation of the sanctions. Some of these, like South Korea and Japan, are just now restarting imports under the financial arrangements dictated by the U.S. sanctions regime. The SRE countries want to know if the SREs will be extended so they can plan for their oil needs.
Brian Hook, the U.S. special representative for Iran, has been non-committal about the Trump administration’s plans. In an interview with S&P Global Platts on January 14, he said that the Trump administration is “not looking to grant waivers in anything,” and is satisfied that oil prices are currently at $60 per barrel with Iran exporting under 1 million barrels per day. (This number is not confirmed by outside tracking firms. TankerTrackers.com has Iran’s December oil exports at 1.1 million barrels per day, but that is still a significant drop from Iran’s pre-sanctions exports).
Hook made clear that the Trump administration wants to end the exemptions, and, as he said, “accelerate the path to zero.” However, he acknowledged that the timing on this will depend on the state of the oil market.
This could put the United States and Saudi Arabia on a collision course this spring . OPEC plans to meet in April, just before the exemptions are to be renewed. At that time, OPEC will consider whether to continue its current production cuts.
Last year, President Trump pressured Saudi Arabia to increase production when oil prices climbed to $80 per barrel just as the Iran sanctions were due to be implemented. Saudi Arabia, Russia and OPEC countries did increase production, but when the Trump administration announced the exemptions, it sent the oil market into a downward spiral that plunged prices to lows not seen in almost two years. Saudi Arabia and OPEC are not likely to repeat this experience. They don’t want such low prices, and they are bound to act accordingly.
However, there are potential sources of reprieve for oil prices. First, U.S. oil production could continue to accelerate and keep prices from rising too much. Also, oil demand may weaken , particularly as economic growth cools off in emerging markets. Finally, a few weeks after the next OPEC meeting, the Trump administration could decide once again to issue SREs to keep the price from rising.