India appears confident that it will be able to keep importing Iranian oil this fall despite US sanctions, signaling that high-stakes negotiations between the two countries will continue up until the November 5 deadline.
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Two Indian oil companies have made nominations to import Iranian oil in November despite the threat of sanctions, India’s oil minister Dharmendra Pradhan said Monday. He said India had not yet heard if the US will grant any sanctions relief.
A State Department official confirmed Monday that the US is “in the midst of an internal process to consider [significant reduction exemption] waivers for individual countries.”
“We continue to discuss our Iran policy with our counterparts around the world and the implications of our re-imposition of sanctions previously lifted or waived” under the Iran nuclear deal, the official said.
“Our goal remains to get to zero oil imports from Iran as quickly as possible, ideally by November 4. We are prepared to work with countries that are reducing their imports on a case-by-case basis,” the official said.
Secretary of State Mike Pompeo has said since July that the government would consider requests for sanctions relief from a “handful of countries.” Analysts continue to expect those exemptions to be few and far between.
India has been seeking relief from the US sanctions, with the highest-level talks happening in New Delhi in September between the foreign and defense ministers from both countries.
At the time, Pompeo left the door open for potentially granting relief to India.
“Many countries are in a place where they — it takes a little bit of time to unwind, and we’ll work with them, I am sure, to find an outcome that makes sense,” Pompeo said.
Indian crude imports from Iran continued in the range of 200,000-250,000 b/d during previous sanctions on Iran. After the sanctions were lifted in 2016, Indian state-owned refiners stepped up Iranian crude imports as Iran offered steep discounts on freight. In addition, Iran allowed a 60-day credit on oil purchases, making it lucrative for Indian refiners.
Current prices suggest India’s decision to continue to bring in Iranian crude makes sense, as Iranian crude grades have offered wider discounts in order to remain competitive among the few swing buyers the country still has.
In West Coast India, Iran Heavy has slipped to a $2.70/b discount to US sour benchmark Mars on a delivered basis thus far in October, according to S&P Global Platts calculations.
Richard Nephew, a senior research scholar at the Center on Global Energy Policy at Columbia University, said it has been “staggeringly obvious” that the Trump administration has been considering exemptions from the sanctions since at least July.
Nephew, the principal deputy coordinator for sanctions policy at the US State Department during the Obama administration, said that the administration is considering exceptions for multiple importing countries.
“I think that the current purchasers will all be eligible, meaning that China, Turkey, India, European countries, Japan, and South Korea are all on the table,” Nephew said.
In an interview with the Platts Capitol Crude podcast, Bob McNally, founder and president of Rapidan Energy Group, said that a “more moderate” approach to Iran sanctions, including waivers to China, India and South Korea, may be one of the few ways the US could actively help to reduce oil prices. But the Trump administration may be unwilling to do anything which could be perceived as weakening US policy towards Iran.
“There would be a cost: you would be easing up pressure on Iran,” McNally said. “But if your sole concern or your main concern was $86/b Brent going to $96/b or $106/b, one thing you can do is slow down the sanctions machine.”
Further, removing Iranian crude from the market benefits both US crude producers as well as Saudi Arabia, who will likely compete to fill supply gaps in markets like India.
Back in July, Mars held a $2.86/b discount to Saudi Arab Medium on a delivered cost basis. That spread has moved to near parity thus far in October, in line with relatively competitive Arab Medium official selling prices for Asian buyers. Tellingly, however, Saudi Aramco has since boosted OSPs sharply for November to the Oman/Dubai average plus 50 cents/b. This is the strongest Arab Medium OSPs have been since January 2014, when prompt ICE Brent was trading near $110/b.
Despite the recent rally in oil prices, and President Trump’s public criticism of OPEC, particularly Saudi Arabia, for not increasing production enough, the administration has not changed its Iran sanctions policy, said Joe McMonigle, an analyst with Hedgeye Risk Management.
“We expect zero or close to zero waivers,” McMonigle said in a note Monday. “Anything else would undermine the administration’s objectives on Iran policy.”
On Thursday, White House National Security Adviser John Bolton said it was the Trump administration’s objective for there to be no waivers from sanctions and that Iranian oil and gas exports would drop to zero.
“I’m not saying we’re necessarily going to achieve that, but nobody should be operating under any illusions, what the objective is,” Bolton said. “You can look at the possibility of reductions leading to zero. It doesn’t have to happen immediately, perhaps.”
Platts Analytics expects Iranian crude and condensate exports to fall to 1.1 million b/d by October loadings, and to 800,000 b/d by Q4 2019, down from 2.91 million b/d in April. — Brian Scheid and Meghan Gordon, with Ratnajyoti Dutta and Sambit Mohanty in New Delhi, firstname.lastname@example.org
— Edited by Jeff Mower, email@example.com