US sanctions on Iran tighten supply, set to drive crude prices higher

(Originally posted on : Invezz )

Tightening the oil supply from Iran could provide much-needed support to oil prices in the short term. 

According to a Bloomberg report on Monday, Iranian crude exports to China have been disrupted by broader US sanctions on tankers carrying barrels from Tehran. 

The development comes days ahead of US President-elect Donald Trump taking office at the White House. 

Trump is likely to pursue a stricter compliance of sanctions on Iranian crude oil supply, and may also introduce further sanctions on Tehran. 

This may further restrict oil supply to the world’s largest importer of crude oil. 

Sanctions on tankers

Some November cargoes remain undelivered, following disruptions to several October shipments, Bloomberg quoted Vortexa data. 

At least 191 Very Large Crude Carriers are on the US sanctions list, according to Vortexa.

“Recent US tanker sanctions have led to a slowdown in Iranian vessels calling at Shandong ports, as Chinese buyers increasingly require cargoes to be delivered on non-sanctioned vessels,” Bloomberg quoted Emma Li, senior market analyst at Vortexa as saying in the report.

The disruptions could bring fresh challenges to Chinese refiners, who had been granted additional import quotas. These refine may not be able to utilize their full quotas in the coming months. 

China imports more than a third of Iran’s oil. 

What does Trump mean for the Iranian oil supply?

Iran has boosted its oil production in the last couple of years. The country currently produces about 3.3-3.4 million barrels per day of crude, up from around 2.5 million barrels a day in early 2023. 

The US has not enforced oil sanctions actively, which has led to an increase in exports from the country. 

Warren Patterson, head of commodities strategy at ING Group, said.:

However, with US President-elect Donald Trump set to enter the White House in January, there is potential that he will take a more hawkish stance against Iran, like he did in his first term.

Patterson said that sanctions against Iran would leave 1 million barrels per day of crude oil supply at risk. 

However, with almost all Iranian exports heading to China, it may be challenging to significantly reduce these flows. 

“We are assuming that Iranian supply remains flat at around 3.3m b/d over 2025, with obvious downside risks to this number,” Patterson said. 

Moreover, Patterson believes, any reduction in Iranian supply could leave the Organization of the Petroleum Exporting Countries and allies in a more comfortable position to start unwinding their production cuts. 

Impact on oil prices

Crude oil prices have been largely rangebound throughout the last few weeks. 

Prices have struggled to sustain gains for a longer period even with steep voluntary production cuts by OPEC+. This is due to poor demand from top consuming countries such as China. 

Also, the International Energy Agency expects the oil market to remain oversupplied even with OPEC+ delaying its planned increase in output by three months till the end of March. 

The IEA expects an oversupply of nearly 1 million barrels per day next year. 

“However, some of the IEA’s assumptions regarding supply are probably too optimistic,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

Fritsch said that the IEA’s calculations did not assume the risk of supply disruptions from Iran and Venezuela from sanctions. 

He added that if supply from these countries falls next year, amounting to around 1.2 million barrels per day of loss, then the market will be undersupplied in the second half of 2025. It would also wipe out the oversupply in the first half. 

“OPEC+ would then have some room to increase supply.” 

Fritsch said:

We expect that a tightening of US oil sanctions against Iran, among other countries, will tighten supply and oil prices should therefore rise. 

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