Oil Price | Gregory Brew: The U.S. wants Iran�s oil exports to�drop to zero, according to a recent statement by National Security Advisor John Bolton.

The question is: can the U.S. pull it off?

The pressure has been on Iran�s customers since May, to cut their purchases of Iranian oil and freeze out the oil producer, OPEC�s third largest, from the world oil market. The U.S. is re-imposing sanctions on Iran following the U.S. withdrawal from the 2015 nuclear deal, and has threatened secondary sanctions on any country that continues to buy oil from Iran.

The campaign has proven effective thus far.�In the first half of August, Iran�s oil exports fell by 600,000 bpd, plunging from 2.32 million bpd to 1.68 million bpd. Iran�s exports have been falling all year, and reached their�lowest level in four months�by July, before taking a real plunge in August.

Major customers, including South Korea, have suspended imports. China, despite some defiant posturing in the face of U.S. challenges, scaled back its purchases. While China has given no sign that it will comply with the U.S. directive, reports indicate that it is willing to at least halt any increase in Iranian purchases after sanctions are re-imposed on November 4.

But the big cuts were by India, Iran�s second-largest importer, which reduced its purchases from Iran from 706,452 bpd to 203,938 bpd during the August 1-16 period.

India has been trying to keep a�middle-ground�between the U.S. and Iran, as it navigates the new sanctions regime while still preserving access to cheap Iranian oil and gas imports. India imports 80 percent of its energy and Iran is its third-largest supplier. Trade links between Tehran and New Delhi have strengthened in the last several years, but now India faces considerable pressure to cut its ties with Iran as the U.S. seeks to reduce Iranian oil exports to zero. Iran has�offered�cargo insurance and freedom to use Iranian tankers to India as a way of enticing it to keep buying.

If India were to comply with U.S. sanctions, Iran�s oil exports would fall to around 1.5 million bpd. Reports indicate India�doesn�t want to cut its purchases completely, and that like China it will continue buying Iranian oil. But India may pivot towards new sources of supply, including American crude, to make up the difference. India imports from the U.S. have been steadily increasing,�reaching 264,000 bpd�in May 2018 according to EIA data.

Where China has some geopolitical reasons to oppose the U.S., including its on-going trade and tariff war with the Trump Administration, India needs to maintain ties to the U.S. financial system and can�t risk isolating itself. Facing a shortfall in imports due to the collapse in Venezuelan production, India will be hard-pressed to replace all of its Iranian supply, and could seek a waiver if it reduces Iranian imports by 50 percent.

Turkey, another major importer of Iranian crude, reduced its purchases in a big way last June: imports from Iran�fell�from 262,225 bpd to 81,075 bpd between May and June. It�s made up the difference by importing from Iraq and Russia.

Turkey was expected to follow the U.S. lead, but a recent diplomatic rift with the Trump Administration and a faltering economy may encourage Ankara to maintain access to Iranian oil, which it can import cheaply. Iran is a major source for Turkey, which like India relies heavily on energy imports: in the first six months of 2018 Iran supplied�49% of Turkish oil imports.

During the August 1-16 period, Iran�s flow to Europe increased from 465, 450 bpd to 631,814 bpd. Reports had indicated that European purchases would plummet this summer, as importers shied away from Iran in order to avoid U.S. secondary sanctions. Along with India, Europe has contributed the most to Iran�s resurgent oil exports after sanctions were lifted in January 2016. Purchases�fell�to about 415,000 bpd earlier this year, before jumping back in August.

The EU has shown an unwillingness to go along with the Trump Administration�s policy. It has attempted to keep the July 2015 nuclear deal alive and hopes to�retain commercial ties�with Iran even as U.S. sanctions go into effect.

But while European governments have resisted the U.S. campaign to isolate Iran, European refiners began to wind down purchases earlier this summer. European energy companies like Total SA have walked away from investing in Iran, and while European cooperation with the sanctions regime won�t be on the same level as 2012-2015 (when both the EU and the U.S. supported imposing sanctions), it will likely prove strong enough to cut into European purchases of Iranian supply.

Again, the question is: will the U.S. succeed in pushing Iran�s exports to �zero?� Probably not, though it will come pretty close. If Chinese imports hold steady, India and Turkey reduce to 50 percent of the pre-sanctions level and Europe cuts about the same, Iran�s exports will fall to less than 1 million bpd. Production will be diverted to floating storage, as it was in 2012-2015, but Iranian earnings from oil exports will be significantly depressed. Rising prices may mitigate some of the damage, but the impact on Iran�s already-shaky economic system will be severe.