Iran Sanctions Uncertainty Centers on China
The US has imposed new sanctions on Iran, dubbed 'economic D-Day', but their impact on US oil and gas producers is uncertain. The immediate measures seem less dramatic than the rhetoric, with the real question being how aggressively Washington will enforce secondary sanctions against Iran's remaining trading partners.
Rystad Energy's Jorge Leon said that China is the key to understanding the situation, as Iranian crude exports have already fallen sharply due to the blockade and China is essentially the only significant buyer left. Unless China materially reduces purchases further, the additional impact on Iranian oil revenues could be relatively limited.
The biggest oil-market risk may not be the sanctions themselves, but Iran's response to them, according to Leon. Tehran has threatened to treat countries supporting the US campaign as participants in the war and has raised the prospect of preventing oil from leaving the Persian Gulf. This creates an asymmetry for the oil market: there may be relatively little additional Iranian oil left for sanctions to remove, but Iran still has considerable capacity to disrupt everybody else's exports.
Rystad Energy sees a protracted stalemate as the most likely path over the coming months, with traffic through the Strait of Hormuz remaining near current depressed levels before beginning a gradual recovery. The starting point in Rystad's latest base case is close to the current operating environment, with traffic through Hormuz settling around 3 million barrels per day, substantially below pre-conflict levels.