On 28 June, the US Administration issued «significant reduction» waivers to China and Singapore. That was the last possible date on which it could have done so, and the two countries were the last remaining significant importers of Iranian petroleum that did not already have them.
In our view, the US has now substantially lessened the likely incremental impact from these new sanctions on Iranian supply to the market. We doubt that they will result in the reduction of around 1mmb/d anticipated by many other commentators and which is needed to balance the market in 2H12. Despite the bounce last week, that still leaves the oil price risk to the downside, we believe. The granting of these waivers was in line with our expectations and delays the point at which the US has to address the dilemma it faces in applying the new sanctions until after the US Presidential elections. We doubt that China has made any hard commitment to reign back imports of Iranian crude. While these have fallen 26% YoY for the YTD, providing cover for the US Administration to issue the waiver, they are recovering sharply. Although the US has juxtaposed IEA numbers to suggest that sanctions have cut Iranian supply by 1mmb/d, perhaps more instructively the IEA’s estimates for Iran’s crude production less domestic demand have fallen 0.3mmb/d from an average of 1.5mmb/d for FY11 to 1.2mmb/d for the YTD. Indeed, they have been fairly stable through 2012 after the fall at the start of the year.