Controversy is brewing over Iran’s oil exports. Under the new U.S. sanctions, Iran should be barred from exporting oil. However, the U.S. is not directly embargoing Iran's oil exports, but instead, sanctions put the onus on customers not to buy Iranian oil. Despite the risks, some buyers are still willing to purchase Iranian oil, which they can buy at a discount.
The Persian Gulf is one of the most heavily traveled shipping lanes in the world, and this makes tracking ships carrying Iranian oil challenging. Iran has also become proficient at hiding its crude oil exports. Ships almost always turn off their AIS transponders (satellite tracking devices) or send false information about their destinations or cargo. Iran also makes the oil difficult to trace back to its origin by masking exports using ship-to-ship transfers of oil. (For examples see TankerTrackers.com).
The central question for oil traders is whether the clandestine Iranian oil exports are consequential enough to impact the market and oil prices. To answer that, we need an accurate picture of how much oil is being exported.
Iranian Oil Exports In Numbers
According to Reuters, Iran exported only 100,000 barrels per day in July. This is an incredibly low number. It represents a drop of at least 200,000 barrels per day from June, when Reuters put Iran’s exports at between 300,000 and 500,000 barrels per day. If correct, this information could indicate that Iran’s recent activities in the Gulf—shooting down a U.S. drone and commandeering a British-flagged ship—are actually having a detrimental effect on the country’s ability to sell its oil. For traders, this would mean that the supply of Iranian oil has contracted notably. For comparison, Iran exported 1.1 million barrels per day in March 2019. A contraction of 1 million barrels per day of oil in about 3 months would be a significant sign and would, in a market not obsessed with demand weakness, push prices higher.
However, Reuters is not the final authority on Iranian oil exports and on this matter, its data does not appear to be the most accurate. Other organizations, including Kpler and TankerTrackers.com offer different pictures of Iranian oil that show more of the country's oil is actually making its way into the market.
Kpler’s numbers reveal that Iran’s exports are trending down, but not as significantly as Reuters’ numbers. It recorded 417,000 barrels per day of oil exported in July and 532,000 barrels per day in June. This kind of drop isn’t that material to the market.
According to TankerTrackers, however, Iranian oil exports are increasing, not decreasing. Their data show that Iran exported about 575,000 barrels per day in June, and, during the first 21 days of July, exported 759,000 barrels per day. TankerTrackers numbers are consistently higher for Iranian oil exports, in part because they use visual satellite images as well as AIS information to identify oil exports. TankerTrackers put Iran’s March exports at 1.9 million barrels per day, so the drop in exports between March and July is actually more noteworthy (1.14 million barrels per day) than the drop reported by Reuters.
The True Impact Of Iranian Oil Supply
In today’s oil market, which is ruled by demand forecasts, macroeconomic indicators, U.S. crude production and the U.S. stock market, Iranian oil supply hasn’t been a crucial price mover. However, oil market sentiment can be quick to change and it would not be surprising if global oil supply soon returned as a primary determinant of pricing. In that event, traders will need to know exactly how much oil Iran is putting on the market and especially whether Iran’s oil exports are increasing or decreasing.