U.S. Forecasts 50 Percent Cut in Iran Oil Sales
In early November, the US will apply energy sanctions on Iran as a result of the US pulling out of the Iran nuclear agreement. The Trump administration forecasts that countries will be persuaded to cut Iranian oil imports by 700,000 to 1 million barrels per day (mmbd). This is short from the original goal to halt one hundred percent of crude sales out of Iran. Last year, Iran exported 2.1 mmbd. Iran is already feeling the pressure as the state-owned National Iranian Oil Co. reduced prices to the lowest levels in fourteen years. Despite the pressure of the sanctions, multiple countries have announced they will not be cutting Iranian oil. China, who accounts for approximately 50 percent of Iran’s oil exports, said they will not cut Iranian oil. Another challenge is the European Union (EU) countries, which account for twenty percent of Iranian oil exports. Multiple EU nations vowed to continue participation in the nuclear accord and import oil from Iran. It remains uncertain whether the European oil companies will stand with their governments or cut Iranian oil to avoid US sanctions.
On the other hand, the US is selling more oil to India as the countries signed a short-term contract to continue their business relationship from November to January. India is Iran’s largest customer of crude oil. This is the first step in allowing US oil companies to make long-term deals with Asian markets, which is mainly dominated by Middle Eastern suppliers. This will also help India when there are supply disruptions in these Middle Eastern nations, like the sanctions on Iran. Currently, the state-owned Indian Oil company plans to continue buying oil from Iran until the government decides otherwise.
China’s Tariff Turnaround: U.S. Crude Removed
China imposed 25 percent tariffs on $16 billion worth of US imports. However, crude oil, which was a commodity originally on the list, did not make the final cut. In the past two years China has been the largest buyer of US crude oil as they imported nearly 20 percent of total US exports. China depends on imports for 70 percent of its energy needs, while this value is expected to increase to 80 percent by 2040. President Xi is attempting to reverse this trend by expanding domestic oil and gas exploration. This is an attempt to boost China’s energy security and be less dependent on other countries like the US, Saudi Arabia, and Russia.
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