As the U.S. sanctions on Iran are now a little over two months away with a start date of November 5th against Iranian oil exports, two other OPEC member nations, Saudi Arabia and Iraq, are continuing to position themselves to capture additional European oil market share as a result of these sanctions.
Iran is the fifth largest oil exporter in the world with 1.5 million barrels per day that will be up for grabs for other OPEC / non-OPEC producer nations in the coming months. While Iran’s crude customers consist mainly of China, India, Japan and South Korea it also has customers in Turkey and the European Union. Current expectations are for Russia, China and Turkey to ignore the threat of U.S. sanctions on their nations as a result of their continued business with Iran while Iraq, Japan and South Korea will seek exemptions from the U.S. Although a senior Iranian diplomat recently commented to OPEC that no member country should be allowed to take over another’s share of imports, recent trade flow data from Reuters suggests otherwise. Both Saudi Arabia and Iraq are already capturing additional market share. Since the beginning of the year, Iranian crude shipments to Europe have fallen 35 percent while Saudi shipments have doubled and those from Iraq have increased by 30 percent. As for what the Iranian output cut would mean globally, the International Energy Agency stated “as oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity.” The agency went on to comment that “the market outlook could be far less calm at that point than it is today.”
In other Saudi Arabian news, the shelving of Saudi Aramco’s initial public offering is being disputed by the Saudi Energy minister. “The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum.” He continued, saying “this timing will depend on multiple factors, including favorable market conditions, and a downstream acquisition which the company will pursue in the next few months.” Economic conditions have improved in the country since plans for the IPO were first announced in 2016. At that time oil was approximately $35 per barrel and the government was in need of cash. Since then oil prices have doubled and the state deficit has been greatly reduced. The delay however does raise credibility issues with the Kingdom. “The Aramco IPO was supposed to be an example of a new global level of transparency. Perhaps because there’s so much going on and so little explained, it looks like they’ve gotten worse at transparency” said a senior Western diplomat. The giant state owned oil-company was seeking to have an estimated initial value of over $2 trillion which would be twice the size of Apple.