Iran oil exports to plummet in November, then rebound as buyers use waivers

SINGAPORE, Nov 06 (Reuters): Iran's oil exports have fallen sharply since US President Donald Trump said at mid-year he would re-impose sanctions on Tehran, but with waivers in hand the Islamic republic's major buyers are already planning to scale up orders again.

The original aim of the sanctions was to cut Iran's oil exports as much as possible, to quash its nuclear and ballistic missile programs, and curb its support for militant proxies, particularly in Syria, Yemen and Lebanon.

The exemptions, however, granted to Iran's biggest oil clients - China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey - which allow them to import at least some oil for another 180 days, could mean the exports start to rise after November.

This group of eight buyers takes as much as three-quarters of Iran's seaborne oil exports, trade data shows.

"The decision by the US (to grant waivers) represents a departure, for now, from the stated aim of reducing Iran's oil exports to zero," said Pat Thaker, regional director for the Middle East and Africa at The Economist Intelligence Unit.

As a result of pre-sanctions pressure by Washington, Iran's oil exports in November may not exceed 1.0 million to 1.5 million barrels per day (bpd), according to industry estimates, making them as little as a third of a mid-2018 peak.

"US sanctions are expected to bring Iranian crude exports down to 1.1 million bpd in November," according to S&P Global Platts Analytics.

Japan's trade minister, Hiroshige Seko, though, has already said on Tuesday that Japanese buyers of Iranian oil are expected to resume imports from the Islamic republic after the country was granted a waiver from US sanctions.

Platts also reported on Tuesday that South Korea would be able to take around 4.0 million barrels a month (130,000 bpd) of Iranian crude and condensate under a US sanctions waiver.

Japan and South Korea, both close US allies, had toed the Washington sanctions line and stopped buying crude from Iran.

India, Iran's second-biggest oil customer, also cut orders ahead of the sanctions, hoping its effort to reduce reliance on Tehran would pay off in Washington and win it a waiver once the sanctions re-started.

Even China, locked in a bitter trade war with the United States, bowed to pressure from Washington and dialed back imports.

Trading sources said several Asian oil importers are already looking to increase their orders for Iranian oil soon.

Two Chinese sources familiar with the matter said the country would be allowed to buy 360,000 bpd of Iranian crude during the exemption period.

That would be about half the daily average China has been importing from Iran since January 2016, trade data showed.

One of the sources said the US had attached some strings to the import allowance, including counterparty disclosures and laying open settlement methods, which were currently being evaluated before placing new orders with Iran.

Both sources were not permitted to talk to the press about Iran sanctions and declined to be named.

A merchant trader, who also declined to be name, said "enquiries for cargoes from Iran are ... coming in from several Asian buyers."

The wide-ranging exemptions have cut fears of a supply shortage, taking pressure off companies, governments and economies around the world that have struggled with the surging cost for fuel.

US President Trump, facing crucial midterm elections that may cost Republicans control of the US Congress, said on Monday he wants to impose sanctions on Iran's oil gradually, citing concerns about shocking markets and causing global price spikes.

That has helped to take the sting out of the sanctions threat, which helped to lift international benchmark Brent crude futures LCOc1 to four-year highs of almost $87 a barrel in early October.

Brent prices are now about 15 per cent lower than that peak and have barely budged over the last two sessions.

Now it will be key to watch "what happens after the exemptions expire in 180 days," the merchant trader said.

Iran's oil exports rose sharply after the previous round of sanctions were lifted in early 2016. Including condensate, an ultra-light form of crude, shipments peaked around 3.0 million bpd in mid-2018, according to trade data in Refinitiv Eikon.

Another report from Washington adds: The United States (US) snapped sanctions back in place on Monday to choke Iran's oil and shipping industries, while temporarily allowing top customers such as China and India to keep buying crude from the Islamic Republic.

Having abandoned a 2015 Iran nuclear deal, U.S President Donald Trump is trying to cripple Iran's oil-dependent economy and force Tehran to quash not only its nuclear ambitions and ballistic missile program but also support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East.

Earlier, Iranian President Hassan Rouhani said Iran would continue to sell its oil despite Washington's "economic war." Foreign Minister Mohammad Javad Zarif said US "bullying" was backfiring by making Washington more isolated.

Washington has pledged to eventually halt all purchases of crude oil from Iran globally but for now it said eight countries - China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey - can continue imports without penalty. Crude exports contribute one-third of Iran's government revenues.

"More than 20 importing nations have zeroed out their imports of crude oil already, taking more than 1 million barrels of crude per day off the market," US Secretary of State Mike Pompeo told reporters in a briefing. "The regime to date since May has lost over $2.5 billion in oil revenue."

Pompeo said the waivers were issued to countries that have already cut purchases of Iranian crude over the past six months, and to "ensure a well-supplied oil market." The exceptions are designed to last 180 days.

Trump said he wanted to go slow on the sanctions, citing concerns about causing global price spikes.

"I could get the Iran oil down to zero immediately but it would cause a shock to the market. I don't want to lift oil prices," he told reporters before flying to a campaign event.

Iran's exports peaked at 2.8 million barrels per day (bpd) in April, including 300,000 bpd of condensate, a lighter form of oil. Overall exports have since fallen to 1.8 million bpd, according to energy consultancy Wood Mackenzie, which expects volumes to drop to 1.0 million bpd.

Oil prices in October rallied above $85 per barrel on fears of a steep decline in Iranian exports. Prices have fallen since then on expectations that some buyers would receive exemptions and as supply from other big producers has increased.

Ellen Wald, an oil analyst and fellow at the Atlantic Council, said the impact on global oil prices should be "blunted" for the 180-day length of the waivers to the eight countries. The Trump administration hopes more oil production will come next year from Iraq and from a so-called neutral zone between Saudi Arabia and Kuwait, if a dispute between the two countries over the zone is resolved.

In addition, US oil output hit a record high this year of about 11.3 million barrels, and sustained high output could reduce the impact of sanctions. On Monday, international benchmark Brent crude oil futures LCOc1 erased earlier gains to trade at $72.85 a barrel while US crude futures CLc1 fell 0.4 per cent to $62.87.

Oil markets have been anticipating the sanctions for months and the world's biggest producers have been increasing output.

Joint output from the world's top producers - Russia, the United States and Saudi Arabia - in October rose above 33 million bpd for the first time, up 10 million bpd since 2010.

US officials have said the countries given temporary exemptions will deposit revenue in escrow accounts for Tehran to use solely for humanitarian purposes.

The sanctions also cover 50 Iranian banks and subsidiaries, more than 200 people and vessels in its shipping sector, Tehran's national airline, Iran Air, and more than 65 of its aircraft, a US Treasury statement said.

"We've said for a long time: Zero should mean zero," John Bolton, White House National Security adviser told Fox Business Network in an interview. "These are not permanent waivers - no way, we're going to do everything we can to squeeze Iran hard."