The U.S. government’s announcement that the temporary sanction waivers for eight countries importing Iranian crude, announced in November, will end after May with the avowed intention “to bring Iran’s oil exports to zero”, could remove around 1.1 million b/d from world markets.
Impact on global market?
“Saudi Arabia and others in OPEC will more than make-up the oil flow difference” President Trump stated on Twitter. In a similar vein, Bjørnar Tonhaugen of Rystad Energy notes, “since October 2018, Saudi Arabia, Russia, the UAE and Iraq have cut output by 1.3 million b/d, which is more than enough to compensate for the additional loss.”
But this ignores the fact that crude is differentiated by its density (light or heavy) and sulphur (sweet or sour) qualities. Can Iran’s output, which is mostly medium-sour and heavy-sour quality, be replaced? Tonhaugen is confident that Iranian Heavy, Light and West Kharoon grades are available from elsewhere. For example, Saudi Arab Light has similar quality to Iranian crudes and Russia’s Urals crude and Iraq’s Basra Light are comparable, asserts Tonhaugen. Thus, both in terms of quantity and quality Iranian crude could be replaced. But, is such confidence realistic in practice?