Turkey has already strained relations with the US over its plans to buy a Russian missile-defense system. Continuing to buy Iranian crude would sour them further. And even if the Turkish government wants to rebel against the sanctions Tupras, the country’s biggest refiner, may be less willing as it would bear the brunt of any American retaliation.
That leaves India, South Korea and Japan, and they are already lobbying the White House. Even if Trump were to have a change of heart, he doesn’t have to capitulate fully. Were he to agree a 25 percent reduction in the volume of oil allowed for purchase from Iran over the next six months, that would still make his sanctions tougher than those of his predecessor.
But if the president refuses to budge, then all three are likely to stop buying crude and condensate from Iran. They are already starting to toe the line — the sharp drop in Iranian exports seen in April includes a big decline in volumes to South Korea, and no cargoes heading to Japan.
The US sees itself as able to get tougher with its sanctions because it believes oil markets
are well-supplied, unlike last November. Brian Hook, Special Representative for Iran, says all forecasts show the global supply of oil exceeding demand in 2019. That’s only true if OPEC
boosts its overall output. The group’s production already has to increase by 250,000 barrels a day in the second half of 2019 compared with last month’s levels to balance the market, according to the Department of Energy’s latest forecast.
The US expects others to offset the impact of tougher sanctions — the Department of State published a fact sheet last week saying it has pledges from Saudi Arabia and the United Arab Emirates to increase production in order to make up for the shortfall from Iranian exports.
Counting on those promises is a gamble. After being blindsided by the waivers issued in November, nobody should expect OPEC
nations to start pumping more until there is clear evidence of Iranian supplies falling. They may also need to compensate for any further falls in output from other members of the Shaky Six. Within that group, both Venezuela and Libya look particularly vulnerable.
The pledges cited by the State Department is doable in theory, but could break the group apart if Saudi Arabia and the U.A.E. are seen as blatantly doing America’s bidding to the detriment of fellow founding members.
Tainted Russian Crude
The situation is fragile enough, but the Russian problem blows it out of the water. Europe’s oil refineries stopped taking piped deliveries of Urals crude from Russia last week after flows were found to be contaminated. Exports through the Baltic export terminal at Ust-Luga also seem to have been affected. That represents a loss of about 1.5 million barrels a day of heavier crude. Shipments of uncontaminated oil are not expected to resume from Russia before May 3, reaching the southern leg of the pipeline before May 10, Ukraine's pipeline operator Ukrtransnafta JSC said on Facebook.
Saudi Arabia may be able to offset the loss of Iran’s exports, or the Russian disruption. Even if it wanted to, it doesn’t have the capacity to do both. American motorists are already paying the price.