Secretary of State Mike Pompeo announced Monday that waivers that allowing eight countries to import Iranian crude oil without being subject to U.S. sanctions would expire on May 2 without extension. The eight countries included China, India, Turkey, South Korea, Japan, Greece, Italy and Taiwan. China and Turkey immediately told him to take a hike. So far, Indian officials said New Delhi was “studying the implications of the decision” but declined further comment. We can assume Chinese-U.S. trade talks will collapse, if the U.S. tries to enforce threatened sanctions against China over Iran.
Russia is an oil exporter, so the issue is moot, but it’s obvious it will not respond to any U.S. engendered sanctions against China (or Turkey). India will be put between a rock and a hard place, if it complies, as 11% of its oil imports are Iranian. Besides favorable prices, Iran offers India 60 days credit, free insurance and shipping. Even if India replaces Iranian supply, prices will be higher, which will impact the trade deficit. India is hoping to benefit from Asian Silk Road investment, which could be at risk if China starts countering sanction moves against it. South Korea will need to scramble for new supply.
Iran has standing export deals with Armenia, Azerbaijan, Iraq and Turkey. Once oil enters those countries, it’s nearly impossible to identify as Iranian oil. From there, it makes its way into southern Europe.
All these countries will accelerate their de-dollarization/petrodollar processes. And being on the US SWIFT system makes them vulnerable to (((somebody))) whispering in Red Queen Trumpenstein’s ear. The howling against the U.S. dollar’s role as the global reserve currency was intense even before the current Make America Crumble Again (MACA) program. Russia has mostly rid itself of its dollar reserves and is soaking up gold. China has moved in the same direction but slower.
This reckless act of decreeing to the entire world that the U.S. and the U.S. alone decides who gets to trade and with whom is suicidal, and that is not a controversial statement. The dilemma will come when major countries on that list refuse to comply. If the U.S. threat is not just a paper tiger, then those countries will be sanctioned — and they’ll respond in kind.
The scheme counts on dubious Saudi Arabia to increase production to make up for a million-million and half barrel-a-day shortfall. According to information gleaned from a recent Saudi Aramco bond prospectus, 12 million barrels per day (from 11 million) in production could be achieve in 3 months and be held there for a year. Pushing the envelope harms oil fields. Industrial sabotage will come into play.
However, Bloomberg reported that industry executives privately said on the sidelines of the Asia Pacific Petroleum Conference in Singapore that they doubt Saudi Arabia can even up production from 11 to 11.5 mb/d for any lengthy period of time. In other words, spare capacity may only stand at 0.5 to 1 mb/d at most.
“Near-term spare capacity is effectively maxed out,” Amrita Sen of consultant Energy Aspects, Ltd. said.
Some within Saudi Arabia agree. Producing “11 million is already a stretch, even for just a few months,” one Saudi official told the Wall Street Journal.
Meanwhile, “Lost in America” MACA-hatter is betting on 22 against a big gasoline spike in the U.S. as summer driving season approaches.
Meanwhile, a Trade War with Europe Looms
On March 14, Trump warned the E.U. of “severe” economic pain, if there’s no progress on trade talks. But on April 15, Reuters reported the E.U. is ready to launch U.S. trade talks — but without agriculture. On April 18, France signaled it will not cooperate with Trump in any way without climate deal.
And Then There’s Iran Itself
Tehran has a variety of well-tested instruments — from undersea mines to terrorist proxies to cyberwarfare — to deliver on a threat, and added incentive to do so given the explicit Saudi and Emirati coordination with the announcement.
The top commander of the Islamic Revolutionary Guards Corps’ (IRGC) Navy says the Strait of Hormuz is an international maritime passage and warned that Iran may close the strategic waterway, if it’s prevented from using it.