The U.S. is overwhelmingly likely to fail in its attempt to completely halt Iran's oil exports, analysts told CNBC, with President Donald Trump eager to avoid rising gasoline prices ahead of presidential elections next year.
As the first anniversary of the U.S. withdrawal from a 2015 nuclear accord between Iran and several world powers approaches, energy market participants are waiting to see whether the Trump administration will extend sanctions waivers on eight countries importing Iranian oil.
Trump has until May 2 to decide whether to issue new waivers to eight governments — China, India, Japan, Turkey, Italy, Greece, South Korea and Taiwan — that were allowed in November to keep buying Iranian oil without facing penalties.
"The U.S. will probably fail to reduce Iranian exports to zero, despite renewed talk from the White House about letting all oil import waivers expire in early May," analysts at Eurasia Group said in a research note published Tuesday.
Given OPEC and non-OPEC production cuts and conditions in Venezuela, "the oil market probably cannot absorb the loss of 1.3 million barrels per day (bpd) of Iranian crude without a significant effect on domestic gasoline prices — a red line for U.S. President Donald Trump," they added.
Deep division
Trump withdrew from a nuclear accord with Iran in May last year and restored sanctions on the country's energy industry in November. The administration wants Iran to stop testing ballistic missiles, end its support for militant groups and accept tougher limits on its nuclear program.
The waivers are designed to allow countries to continue buying Iranian crude so long as they demonstrate they are reducing their purchases.
On Tuesday, the Trump administration's special representative for Iran, Brian Hook, told reporters that "there are better market conditions for us to accelerate our path to zero."
Therefore, the U.S. is "not looking to grant any waivers or exceptions to our sanctions regime," he added.
Hook's comments come at a time when the national security team appears to be split over whether to let a small group of countries carry on importing Iranian crude.
Analysts at BNP Paribas said in a research note published Tuesday that U.S. officials were divided because the National Security Council is "leaning towards a more hawkish stance than the State Department."
The State Department seems to favor "a more flexible approach in achieving the U.S. administration's goal to reduce Iran's crude exports towards zero," they added.
15% chance of a cancellation to all waivers
Despite the confusion, analysts at Eurasia Group said they expected the Trump administration to issue new waivers to the five countries currently importing Iranian crude and condensate: China, India, Turkey, South Korea, and Japan.
That means waivers would likely expire for Greece, Italy and Taiwan.
The political risk consultancy said a cancellation to all waivers remained unlikely — estimating a 15 percent probability — given the potential consequences to both the energy market and U.S. bilateral relationships.
The administration's decision in November to grant sanctions waivers to eight governments surprised the market and contributed to a three-month collapse in crude oil prices.
But, crude futures have surged in recent months, with Brent and U.S. West Texas Intermediate (WTI) both rallying more than 22 percent since the start of 2019.
International benchmark Brent crude stood at $69.74 a barrel on Wednesday afternoon, up 0.5 percent, with WTI trading at $62.73, over 0.2 percent higher.
Gas prices
The U.S. president has frequently emphasized his concern about domestic gasoline prices, saying it outweighs the potential benefits for U.S. shale producers.
Late last month, Trump told OPEC that its members should start pumping more oil as crude prices continued to rise.
"Very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high. Thank you!" Trump said via Twitter.
His second warning to the producer group this year came as OPEC and a group of allies led by Russia continue to cut production following a further collapse in prices in 2018. The output curbs by the so-called OPEC+ group have played a major part in the rebound in the oil market this year.
"Even though presidential elections are nearly 20 months away, Trump clearly remains concerned about near-term fluctuation in pump prices," analysts at Eurasia Group said.