The Trump administration is worried about rising oil and gasoline prices resulting from the latest set of sanctions that it will implement against Iran’s oil and gas industry just two days before the midterm elections. President Trump has good reason to be concerned about the political implications. To stem the rise of oil prices, he has been attacking the OPEC oil cartel relentlessly on twitter and at rallies with the aim of convincing OPEC to increase production.
The price of the international oil benchmark, Brent, is up 50% in the last year and gasoline prices are nearing $4 per gallon in some parts of the country. Speculators are increasingly predicting $100 oil by the new year, but now the Trump administration has announced that it is considering waivers of sanctions to some of the major importers of Iranian oil. The waivers would presumably go to countries that have showed a good faith effort to comply with the sanctions but perhaps are too reliant on Iran to end all imports yet. It would be a mistake for U.S. policy makers to consider waivers at this time because new evidence suggests that a great deal of Iranian oil is still making its way to these countries – often through surreptitious means.
The Trump administration should worry about the amount of Iranian oil that is still on the global market and will continue to be traded after the sanctions begin on November 4. Despite high profile reports that the sanctions will cut off 1.5 million barrels per day of Iranian oil and that Iran’s largest customers – China, India, Turkey, the UAE and Japan– are reducing or ending their imports of Iranian oil altogether, new data on oil shipments from the month of September reveals a picture of the Iranian oil industry that is still robust.
According to a report from TankerTrackers.com, Iran has actually been exporting much more oil to many more destinations than we have been led to believe. TankerTrackers is an online service that monitors oil tankers around the globe, usually via satellite, and has been following Iran’s oil storage and exports since 2015. This new report, utilizing data from MarineTraffic and Planet Labs, released on October 7, is one of the most comprehensive accountings of Iranian oil movements.
India, for example, requested a waiver from the U.S. to continue importing Iranian oil after the sanctions deadline on the basis that it has significantly decreased imports of Iranian oil. The numbers tell a different story, though. India’s imports of Iranian oil have actually remained virtually unchanged between August and September, according to TankerTrackers. The country is Iran’s second largest customer. TankerTrackers asserts that it imported 14.97 million barrels of Iranian oil in both August and September. Compare this to 17.89 million barrels in July. Independent of India’s own claims, the evidence does not indicate that India has actually significantly decreased its imports of Iranian oil. Therefore it does not appear deserving of a waiver.
Policy makers also need to be familiar with the furtive ways that oil tankers can hide their origins and destinations if they truly want to remove Iranian oil from the market. A good example of today’s secret oil trade is the tanker YUFUSAN, which was first seen picking up Iranian condensates and Iranian oil before loading up its remaining space with Kuwaiti oil and then heading to Japan. It can appear to be a tanker of Kuwaiti oil, but, in fact, it carries a significant amount of Iranian oil. Though Japan has significantly decreased its imports from Iran, it still received 1.39 million barrels of oil and condensate from Iran in September. This was not reported in the main media narrative.
The case of the YUFUSAN reveals just how easy it is to mask oil shipments to countries that have publicly declared an end to Iranian oil imports. These tankers may make several stops in the Persian Gulf to try to confuse trackers, and some even turn off their AIS transponders to try to hide their activities and final destinations. Unless policy makers keep a close eye on tanker activities and take these stealthy movements seriously, countries that depend on Iranian oil could, and likely will, continue to import Iranian oil after the sanctions deadline and subvert expensive penalties from the United States. They seek to deceive, because there is too much money at stake to be honest.
The data on oil movements show conclusively that Iran’s oil exports have not decreased nearly as much as the media narrative has suggested . Iran exported at least 2 million barrels per day of oil in the month of September, which is actually an increase from its exports in August. Oil speculators and the Trump administration have been led to believe that the threat of impending sanctions on Iran’s oil is removing so much from the market that oil prices could skyrocket to $100 per barrel this year. The actual data on Iran’s oil exports contradict this. Amazingly, Iran benefits from the narrative doubly, because it helps Iran circumvent the sanctions and the higher oil prices mean more revenue.
There is cheating going on now, and the sanctions have not even started. Already, the volume and destinations of the Iranian oil trade are being concealed. Rather than granting formal waivers, the U.S. government should recognize that it will not stop all of this covert trade. In place of waivers, the Trump administration must really consider how much it can and will crack down on the covert trade of Iranian oil. Moreover, the market should keep a closer eye on this veiled transportation of oil as it races towards $100.