British energy analyst: Global oil prices likely to rise after Iran sanctions

Tasnim – A noted British analyst specializing in the geopolitics of energy and Middle East energy affairs said Washington’s bid to sanction Iranian crude exports could trigger a dramatic shortfall in global supply, adding that the move could push oil prices up after sanctions kick in.

“I expect Iranian exports to fall below 1 mb/d before the end of the year, but it would be much harder for the US to reduce them to zero,” Richard Mallinson told Tasnim when asked about the US President Donald Trump’s attempts to cut Iran’s oil to zero.

He added, “The oil market is likely to struggle for supplies through 2019, which means prices are likely to go rise further.”

Richard Mallinson is a senior policy professional and works with the Energy Aspects. A member of the Royal Institute of International Affairs (Chatham House), he has published analytical papers and articles on international affairs and energy policies in such outlets as MEES and the Oxford Energy Forum.

Following is the full text of the interview:

Tasnim: US President Donald Trump announced in May that Washington was pulling out of the nuclear agreement which lifted nuclear-related sanctions against Tehran in exchange for restrictions on Tehran’s nuclear program. The US administration reintroduced the previous sanctions while imposing new ones on the Islamic Republic. A first round of American sanctions took effect in August, targeting Iran’s access to the US dollar, metals trading, coal, industrial software, and auto sector. A second round, forthcoming on November 4, will be targeting Iran’s oil sales and its Central Bank. How much and in what way do you think the sanctions will affect Iran’s economy after Nov. 4?

Mallinson: We are already starting to see a significant impact from the US sanctions on the oil sector. Many buyers of Iranian oil are entirely halting purchases ahead of the deadline and others are scaling back volumes significantly. We expect exports to fall below 1 mb/d in the coming months. Even at higher international oil prices this means significantly lower revenues for Iran.

Tasnim: How can Iran evade the sanctions this time? Do you believe that forging closer ties with China and Russia could help?

Mallinson: I expect Iran will find it difficult to circumvent sanctions with significant volumes of oil because of the tough approach to implementation that the US administration is taking. While many governments have criticized President Trump’s decision to withdraw from the JCPOA, the risks of US secondary sanctions are too large for most companies to be willing to continue handling Iranian oil. Some in the oil market expected China to increase purchases of Iranian oil, but the latest indications from Chinese buyers are that even they will scale back, but not stop buying entirely. Meanwhile there are practical challenges that would make it very hard for Russia to help move large volumes of Iranian oil.

Tasnim: On Sept. 25, the European Union, in a major snub to the United States, decided to set up a new mechanism to enable legal trade with Iran without encountering US sanctions. How much do you think this new system could work?

Mallinson: European governments have been working hard to try and persuade Iran to remain in the JCPOA after the US withdrew, but they will struggle to protect European companies from the reach of US secondary sanctions. Those companies have already largely stopped buying Iranian oil, to avoid being sanctioned themselves and because the banks and insurers they use are unwilling to continue working with them unless they stop processing Iranian oil. At least for the oil sector the EU payment mechanism looks like a diplomatic gesture that will not work in practice.

Tasnim: Do you think that the US could cut Iran’s oil to zero? Should we expect a global energy insecurity after Nov. 4?

Mallinson: I expect Iranian exports to fall below 1 mb/d before the end of the year, but it would be much harder for the US to reduce them to zero. I still expect some volumes to head to China and India and we are likely to see the US grant some waivers to mitigate the risks to oil supply, particularly because there will be some delays before other producers can raise production further. But these waivers are likely to be more limited than the ones granted by the Obama administration in 2012-15. The oil market is likely to struggle for supplies through 2019, which means prices are likely to go rise further.