A report from the State Department says that the US will announce to no longer grant waivers as regards the Iran sanctions for crude exporters. This news will have a huge impact on the prices of oil this week as the US is attempting to reduce Iran’s export to zero. In September 2018, the US was lenient and compromised with the sanction. That incidence eventually led to a fall in oil prices in the last quarter of the year.
Three Countries Completely Stops Iranian Oil Importation
In November 2018, the State Department gave the eight affected countries, 180 days clemency to find alternative sources of oil importation. Three of the eight countries (Italy, Greece, Taiwan) that received the waivers have now completely reduced their Iranian oil importation zero. The other five (China, India, Turkey, South Korea and Japan) will have to follow suit or otherwise would face US sanctions.
As time is running out, the report revealed that the US is not going back on their words this time after the 180 days pardon elapses. “On Monday morning, Secretary of State Mike Pompeo will announce to the media that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate”, the report said.
Officials said that Pompeo always wanted to stop the waivers when the market conditions favored it. “The policy of zero Iranian imports originated with Secretary Pompeo,” a senior State Department official said. “He has executed this policy in tight coordination with the president every step of the way. Because the conditions do not grant any more SREs have now been met, we can now announce zero imports.”
The Effect on the Oil Market prices
The resolution to stop waivers will have huge a huge effect for world oil markets, which have been keenly expecting President Trump’s decision on whether the waivers will be extended or not. WTI crude is up 31-cents to $64.31, although the market has not responded to this happening. It is expected that it should provide a substantial boost to the oil prices, NOK, CAD and any other exporters of the commodity. The report will further make known the planned counterbalance measures through alternative suppliers such as the United Arab Emirates and Saudi Arabia. The officials asserted that for this reason and the fact the supply is now more than demand, the market disruption would not be as severe. The details on this will be very critical.
This development will as well have a ripple effect on the purchasing power of other Iranian crude importers. While Russia may want to provide succor by importing the commodity, there may not just be enough capacity to make up for the 1.25 million barrels per day, which Iran currently export.
From the chart, WTI is presently up 28-cents to $64.05, although the markets as a whole have not fully responded to this development. This would be a huge support for major exporters such as Canada. Also, Brent is up 34-cents to begin the week and is testing the 61.8% retracement of the Q4 rout. A break above it could cause a spike to as high as $86.