Iran’s oil exports are already falling fast ahead of sanctions President Trump will impose in November, risking higher oil and gas prices in the U.S. as the midterm elections approach.
Iran’s oil exports are expected to fall by a third in September, the Wall Street Journal reported Tuesday night.
The newspaper says the state-run National Iranian Oil Co. projects crude shipments to drop to about 1.5 million barrels a day next month, down from about 2.3 million barrels a day in June.
Experts say Iran’s customers are already rejecting its oil because delivery of crude takes time, meaning if they wait, they would risk running afoul of Trump’s promise to penalize countries — by blocking them from U.S. markets and financial institutions — that buy any amount of oil from Iran beginning Nov. 4.
“It takes 30 to 45 days for a cargo to get from Iran to Asia, so if you wanted to buy crude before November, it would be now or never,” Amy Myers Jaffe, director of the program on Energy Security and Climate Change at the Council on Foreign Relations, told the Washington Examiner. “Companies are already reducing ahead of the deadline. The market impact is happening now.”
Oil prices rose, topping $70 per barrel, when the Trump administration in June said it would take a zero tolerance approach to enforcing sanctions on Iran after it abandoned the nuclear agreement with Tehran in May. But some experts say prices could yet go higher.
If that happens, it would show how Trump’s own policy could frustrate drivers during the homestretch of the midterm elections, because lost Iranian oil supply would likely increase oil prices, which is the largest determinant of U.S. gasoline prices.
U.S. gasoline prices as of Wednesday were $2.84 on average, compared to $2.38 a year ago, according to AAA.
“Threatened Iranian losses may be raising the price floor,” said Frank Verrastro, senior vice president of the Energy and National Security Program at the Center for Strategic and International Studies.
“There is simply not enough readily available spare oil production capacity in the world to replace the loss of all Iranian barrels,” Verrastro said in a draft commentary he is writing on the subject, which he provided to the Washington Examiner. He was outlining a worst-case scenario assuming all countries stop buying Iranian oil, which is unlikely.
Trump has tried to thread the needle on oil prices, pushing OPEC and its largest member and ally, Saudi Arabia, to boost crude production to offset expected losses as a result of his hardline approach to Iran.
The pressure campaign worked, with OPEC collectively agreeing last month to boost oil production by 1 million barrels per day, overturning a prior production cut agreement because prices had fallen too much.
But that may not be enough to offset Iran’s lost oil, especially with production problems in other high-output countries, such as Venezuela and Libya.
Iran is OPEC’s third-largest producer and has sold around 2.4 million barrels a day, or more than 2 percent of global supplies, since the lifting of sanctions in 2016.
Experts have predicted Iran’s oil exports could fall by as much as 1 million barrels per day by year’s end because of Trump’s sanctions.
But some of Iran’s oil fall may already be happening ahead of schedule.
Richard Nephew, a senior research scholar at at Columbia University’s Center on Global Energy Policy, noted that Japan and South Korea, top consumers of Iranian oil, are cutting their purchases more than expected. Buyers in Europe have also cut back. On the other hand, China, Iran’s largest customer, has vowed to sustain its purchases, taking advantage of discounted oil from Tehran.
“I do think that they’re [the Trump administration] going to get more cooperation than I originally anticipated back in February when I thought they’d get 600,000 barrels per day off within the first year,” Nephew, who directed sanctions policy at the State Department in the Obama administration, told the Washington Examiner. “I also think that we’ve not seen the last of prices going up over this.”
Nephew, however, cautioned against drawing conclusions based on month-to-month fluctuations that always occur in the oil markets.
Joseph McMonigle, president of the Abraham Group, a consulting firm, and a former chief of staff of the Energy Department in the George W. Bush administration, argued that concerns about Trump’s policies are overblown and says Iran’s falling oil production is consistent with expectations.
“The Iran policy is working as advertised,” McMonigle told the Washington Examiner. “Many thought Iran oil exports would not be affected by U.S. sanctions alone without the European Union and other partners joining. We had forecasted about 1 million barrels per day cut in Iran exports due to U.S. sanctions getting reimposed, and we are on track to that number.”
McMonigle added higher prices for Americans could come later, to Trump’s benefit.
“For the most part, Saudi Arabia and OPEC has responded to Trump’s request to moderate prices, and we are now coming out of high demand summer driving season, so gasoline prices should be at more normal levels before the election,” he added. “From a political standpoint, most of this will occur after the U.S. election so it will have minimum impact, which is good for Trump as well as OPEC.”
