Bloomberg

Iran’s position in the oil market is looking weaker than ever as a bruising OPEC meeting and tightening net of U.S. sanctions leave it with fewer friends and fleeing customers.Tehran is getting hit from all sides. Washington is telling buyers to stop all purchases of the country’s crude, while OPEC and its allies are bowing to U.S. pressure to raise output and fill the gap. Iran may be left with few options beyond convincing China to buy more of its oil, risking over-reliance on what’s already its biggest customer.“Iran is in a really horrible position right now,” said Sara Vakhshouri, head of Washington, D.C.-based consultant SVB Energy International. “There’s not really much Iran can do to maintain its export level.”Before last week’s meeting of the Organization of Petroleum Exporting Countries, Iran had been lobbying its fellow producers to condemn President Donald Trump’s “unlawful” re-imposition of sanctions and resist U.S. pressure to increase the group’s production. It failed on both counts as Saudi Arabia and Russia interpreted a vaguely worded agreement as a license to pump an extra 1 million barrels a day, making up for production lost by other members.“Iran is irrelevant to OPEC,” said Olivier Jakob, managing director of consultancy Petromatrix GmbH. “The OPEC communique was vague and the message was supplanted by the Saudis and Russians. So you can see who is in charge here.”After being largely abandoned by its fellow OPEC members, Iran was hit even harder by its greatest foe. The U.S. State Department announced it was aiming to drive the country’s oil exports to “ zero,” rejecting the gradual approach to sanctions President Barack Obama’s administration adopted back in 2012.It’s not clear the U.S. will achieve a full halt, since even American allies are displeased with its unilateral abandonment of the deal that curbed Iran’s nuclear program.“Korea, China, Japan have already expressed they cannot go for zero,” Iran’s OPEC governor Hossein Kazempour Ardebili said in an interview on Wednesday.Still, there are plenty of other signs the sanctions could take out a significant share of the 2.5 million barrels of crude a day the Middle Eastern nation currently exports.In an interview with Bloomberg television last week, Oil Minister Bijan Namdar Zanganeh said buyers including France’s Total SA and Royal Dutch Shell Plc have already halted purchases. Total’s CEO Patrick Pouyanne said last month that it was unthinkable for any international company to risk being excluded from the U.S. financial system -- the penalty for buying Iranian crude beyond Nov. 4.Total’s position illustrates the immediate danger to Iran’s crude exports, but also the long-term damage they could inflict on the country’s oil and gas industry. The company has started to pull out of the South Pars 11 natural gas project, the largest investment by an international energy company in the country.Iran’s crude sales are set to drop by at least 500,000 to 600,000 barrels a day this year, with the shortfall potentially much higher given Tuesday’s announcement from the State Department, according to Vakhshouri. John Browne, former BP Plc chief executive officer and current chairman of L1 Energy Holdings Ltd., anticipated a drop of as much as 1.5 million barrels a day.At least some buyers of Iranian supplies are considering acquiescing to Trump’s demands. Europe, the second-largest destination for Iranian crude after Asia, will probably take more Russian, Saudi and Iraqi barrels, said Jakob. China could buy more oil from Iran, though it will take the country time to arrange deals that get around U.S. restrictions on financing and shipping, said Sri Paravaikkarasu, an oil analyst with consultant FGE in Singapore“Iran will definitely try to look to China, which is, in a way, the last resort,” said Paravaikkarasu. “Indian private players have clearly stated that they are going to reduce Iranian imports while Japanese and Korean refiners will comply predominantly” with U.S. pressure, she said.Crude sales were continuing largely as normal through June and some customers were expected to halt deliveries from July, according to an official in Iran’s state oil company, who asked not to be identified when discussing confidential matters. Zanganeh said Iran is working on methods to skirt the sanctions so it can keep exporting, without giving any details.Relying mainly on China -- which largely maintained its imports from Iran during the previous sanctions from 2012 to 2016 -- could generate the minimum amount of revenue Iran requires to pay for essential goods, food and medicine, said SVB’s Vakhshouri. But it would also be risky to depend so much on a single buyer, especially a country that’s embroiled in its own tense negotiation with the U.S.“If the U.S. and China reach to a trade agreement, we could expect significant Iran oil-import cuts,” Vakhshouri said.