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Sanctions against Iran: the long-term effects on international crude oil trades
30 March 2020
Key points:
US sanctions have led to sharp declines in Iran's crude
oil exports
If the sanctions against Iran remain unchanged, Iran is
expected to lose its revenues resulting from the reduction of crude
oil exports by 1.210 million metric tons (approximately $613.1
billion, at 2018 prices) by the end of 2030
Trade rerouting from Iran to other countries is
observed, although the compensation of Iranian crude oil imports is
relatively low and estimated at 12.2% in 2019
The restrictions on imports from Iran have hit mainland
China and India most; both were responsible for 58.4% of total
Iranian crude oil exports in terms of volume in 2018
We predict that the highest possible benefits in the
long run, as a result of the trade rerouting, will benefit two
countries — Saudi Arabia and the United States
Impact on Iran exports
World trade in crude oil amounted to 2.224 billion metric tons
(44.7 million barrels per day) in 2018. Iran was the ninth-largest
country in global crude oil exports with a share of 4.2% in terms
of volume in 2018. The sanctions re-imposed by the United States in
2018 and 2019 on Iranian oil imports have resulted in a sharp drop
in Iran's oil sales last year. We estimate that Iran has reduced
its revenues from oil sales from $47.862 billion in 2018 to $14.157
billion in 2019 (at 2018 constant prices).
Based on crude oil monthly data provided by IHS Markit Global Trade Atlas, after May
2019, when Iranian crude oil was supposed to be completely
prohibited from imports, it was still imported by two countries:
mainland China (regularly) and the Netherlands. Therefore, despite
the sanctions imposed on the imports from Iran being in force, we
expect the Chinese imports to be maintained in 2020 and beyond.
China (mainland) and India are the countries that have the most
reduced crude oil imports from Iran compared with the no-sanctions
scenario.
If the sanctions remain in force — the escalation of the
US-Iran conflict at the beginning of the year indicates this —
the total loss of revenues from Iran's crude oil sales will be
about $613.1 billion*, which corresponds to a total fall in volume
by 1.210 million metric tons (down 2.0 MMb/d on average) over the
period 2019-30.
Offset the reduction in Iranian crude oil
exports
We further observe some crude oil trade rerouting from Iran to
other countries. Due to the existing trade relationships, we expect
the largest beneficiaries to be those countries that have increased
supply of crude oil to Iran's trade partners after the sanctions
were imposed. Based on the monthly IHS Markit Global Trade Atlas data, we
estimate the compensation factor (balancing imports from Iran with
crude oil supplies from other countries) was, on average, 12.2% in
terms of volume in 2019 for Iran's trade partners.
Saudi Arabia and the United States can benefit the most from the
trade re-allocation. These two countries are predicted to be
responsible for one-fourth (with a share of 24.9%) of the total
crude oil imports compensation from Iran in volume terms through
2030.
Brief background on sanctions
The United States sanctions recently imposed on Iranian crude
oil exports were introduced in two waves. The first wave in
November 2018, when imports of oil from Iran were banned, with some
temporary exemptions granted to countries such as China, India,
Italy, Greece, Japan, South Korea, Taiwan, and Turkey, to ensure a
well-supplied oil market. The second wave in May 2019, when the
sanctions against Iran were tightened and the ban on Iranian crude
oil imports was introduced for all countries without any
exemptions.
To learn more read the full article on IHS Markit Connect
(Please note you need a Connect subscription)
Notes:
The forecasts do not take into account the impact of the
problems in negotiations with OPEC, the coronavirus disease 2019
(COVID-19) effect on the world economy, as well as the upcoming
presidential elections in the United States in late 2020.
Predictions are between 2019 and 2030.
*Values at constant trade unit values (export/import prices) for
2018.
Barrel per day unit (b/d) is converted from metric tons: 1 b/d = 1
metric ton * 7.33 / 365 days.