Ten days ago, the Biden administration expanded sanctions on Iran’s petroleum and petrochemical sectors in response to Iran’s October 1 attack on Israel, its second direct attack on Israel this year. According to the White House, Iran’s oil exports are enabled by a network of illicit shipping facilitators in multiple jurisdictions which, through obfuscation and deception, load and transport Iranian oil for sale to buyers in Asia, China in particular. The new measures essentially mean the U.S. can target any part of Iran’s oil trade, and go after almost anyone who deals with it. Washington says the expanded sanctions will limit Tehran’s ability to earn critical energy revenues to undermine stability in the region and attack U.S. partners and allies.
“Our goal, and what we made very clear to the Iranians, is that if they continue with their destabilizing activity and their attacks against Israel, we’re going to be prepared to continue to do more,” U.S. Deputy Treasury Secretary Wally Adeyemo said.
However, oil markets have continued to confound traders, with oil prices falling more than $5 per barrel ever since the announcement hit news feeds, defying expectations for a potentially politically damaging spike in world oil prices. Brent crude for December delivery was trading at $74.19 per barrel at 12.15 pm ET, down from $79.40 per barrel on Oct. 10 while WTI crude for November delivery was changing hands at $70.509 per barrel down from $75.85 per barrel. The fall in prices was triggered by a report that emerged last week saying that Israeli Prime Minister Netanyahu told the Biden administration that Israel is willing to strike Iran’s military infrastructure, rather than oil or nuclear facilities and that Israel would take U.S. opinion into consideration.
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Previously, commodity analysts at Standard Chartered reported that Iranian oil exports have spiked, with Malaysian waters becoming a conduit for ship-to-ship transfers of Iranian oil.
According to StanChart, the latest China customs import data shows crude oil imports from Malaysia clocked in at 1.456 million barrels per day (mb/d) in June, the second-highest monthly average on record.
The commodity experts have pointed out that Malaysia’s crude oil output is about 0.35 mb/d while exports usually average 0.2 mb/d, implying that the vast majority of the oil that China imports from Malaysia was not produced in the country. According to multiple media sources, the transfers involve a dark fleet consisting of a group of aging tankers that rarely have an identifiable insurer. These transfers can be hazardous, including the danger of spills and collisions, with so many low-quality tankers massed in a narrow trade route with their transponders off. For instance, two such vessels caught fire off Singapore after a collision on 19 July.
Iran’s oil exports have seen a strong rebound under the Biden administration with the U.S. and its allies hoping to strike a new nuclear deal with Tehran after the Trump administration scuttled the Joint Comprehensive Plan of Action (JCPOA) deal of 2015. Under former President Donald Trump, Iranian oil production tumbled from 3.8 million barrels per day in early 2018 to less than 2 mb/d in late 2020; in contrast, production has surged under Biden to 3.2 mb/d. However, the ongoing war in the Middle East involving Israel against Hamas in Gaza as well as Iran-backed Hezbollah, coupled with Iran’s retaliatory attacks on Israel, have complicated matters for Washington.
Back in April, Washington imposed a raft of new sanctions and export controls on Iran after it launched one of the largest missile and drone attacks against Israel.
According to the White House, the sanctions targeted leaders and entities connected to the Islamic Revolutionary Guard Corps (IRGC), the Iranian government’s missile and drone program and Iran’s Defense Ministry. However, the U.S. did not try to limit Iran’s oil exports at the time.
The fact that oil markets have shrugged off the latest round of more targeted sanctions tells you just how bearish oil markets have become. Perhaps the nonchalance by oil markets is due to a lack of conviction by oil traders that Washington will do anything concrete enough to trigger another oil price rally. After all, Bloomberg has reported that U.S. officials privately concede that there’s a reluctance to target the biggest Chinese oil buyers.
With Democratic presidential candidate Kamala Harris expected to largely carry on with Biden’s policies if she wins the upcoming U.S. elections, oil bulls will probably be hoping that her Republican rival, Donald Trump, will be the one sitting in the Oval Office come January 2025.
By Alex Kimani for Oilprice.com
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