US Cracks Down on Iran’s Use of Front Companies

The U.S. tightened the screws on Iran Thursday, imposing additional sanctions targeted at Iran’s use of front companies to subvert Western sanctions on oil exports.

Oil refinery and petrochemical complex, Mahshahr, Iran,
Oil refinery and petrochemical complex, Mahshahr, Iran,

The U.S. identified dozens of Iranian front companies, ships and banks that it said were helping Iran avoid sanctions aimed at stopping it from acquiring nuclear weapons. The Treasury identified Noor Energy, Petro Suisse, Petro Energy and Hong Kong Intertrade as companies used by the National Iranian Oil Company. U.S. official are also working with the maritime industry to identify Iranian ships, by number, even if they are reflagged or repainted.

“Iran today is under intense, multilateral sanctions pressure, and we will continue to ratchet up the pressure so long as Iran refuses to address the international community’s well-founded concerns about its nuclear program,” said Treasury Under Secretary for Terrorism and Financial Intelligence, in a statement. “Today’s actions are our next step on that path, taking direct aim at disrupting Iran’s nuclear and ballistic missile programs, as well as its deceptive efforts to use front companies.”

News of the further clampdown pressured oil prices Thursday. Brent, the international benchmark, ended the New York session above $101, and WTI crude and gasoline rose with it.

“I think it might have contributed to the market’s turnaround, on the idea there’s a little more geopolitical risk premium,” said Gene McGillian, an analyst with Tradition Energy.

“The overall impact of the whole panoply of sanctions that are in effect now work together to have an even greater impact on Iran,” said a senior U.S. official. Thursday’s actions should have an impact on Iran’s ability to deliver oil to potential purchasers. The U.S. has sanctioned Iran’s central bank and has attempted to prevent oil revenues from flowing back to Iran. Iran has maintained that its nuclear program is not a weapons program.

Separately, another U.S. official earlier this week said one goal was to stop Iran by “crushing” its currency.

“I don’t have a comment on whether that’s an objective, but one of the most significant impacts of the sanctions has been depreciation of the rial which translates into a significant increase in the price of all things Iranians have to import,” said Trevor Houser, a partner with the Rhodium Group. The rial is down about 30 percent since January.

IEA estimates that about 700,000 barrels of Iranian oil are now off the market, from a starting base of 2.3 million barrels. The amount of Iranian crude kept from the market could get higher, since an EU ban went into effect July 1. “The impact on Iran is not only in selling it. It is also in the increasing difficulty Iran is having in getting access to the revenues it is earning,” the senior U.S. official said Thursday.

Oil has been declining on the back of weaker global growth but also as record levels of production keep oil supplies high.

“We haven’t really seen a supply constraint, with Saudi Arabia pumping 10 more million barrels and Russia at near record levels,” said McGillian.

The increased pumping has put global oil production at a record level, as Libya and Iraq have increased production, and the U.S. industry has also increased activity. “In the last three or four months, the supply side of the market has recovered, and we’ve seen inventories build again after three years of inventory draw,” said Houser.

“The market seems relatively well supplied at $90 to $100” a barrel, he said.

Houser said an important turning point for the oil market could come this quarter. “The big question for the third quarter when we come out of the turnaround season for refinery maintenance and this most recent injection of stimulus in China takes effect and the demand side for oil firms up a little bit, that’s when the impact of Iran sanctions could be most acute in terms of oil prices,” he said.

“The question then is whether Iran is able to market the oil it has in storage or whether it has to shut in capacity. And that all comes down to China.”

Houser said China may want to avoid the diplomatic issues of buying more Iranian oil, but if prices start to rise much that could change.

“They’re the big swing. Last year, they averaged 550,000 barrels a day. In the first few months of this year that plummeted because of a price dispute…but May imports were back at 525,000 barrels a day. Shipping data suggest there’s 550,000 barrels in June,” he said.

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