On Monday, several crucial Japanese oil wholesalers announced that come October the firms will cease importing Iranian oil. The announcement, which comes after increased U.S. pressure and the threat of sanctions on any country doing business with Iran, has already caused oil prices to rise, according to a report from Reuters.
Japan had been in negotiations to secure a waiver which would allow Japanese firms to continue importing Iranian oil after the sanctions hit in November. However, according to Agence France Presse (AFP), the Japanese abandoned the negotiations after it became clear they would not be successful.
As an Island nation, Japan depends heavily on foreign oil, especially from the Middle East. However, according to AFP Iranian crude accounts for just slightly more than 5 percent of Japan’s total imports. By agreeing to abide by U.S. sanctions, Japan will need to look for additional oil sources. What those might be, however, have yet to be disclosed by any of the firms involved.
“We’ve been saying we will observe a government decision (on Iranian oil imports), but we can’t comment further as we don’t disclose information on individual trades,” a spokeswoman for Japanese oil wholesale firm Showa Shell Sekiyu said on Monday while speaking to AFP.
As the noose tightens, Tehran is likely to use asymmetrical means such as “discounts, bartering, and smuggling” to get its oil onto the market. According to a report from Bloomberg, Iran hopes to ship around 800,000 barrels per day (bpd) once the U.S. sanctions take effect in November. In the past, Iran disabled the onboard tracking devices used by its oil fleet to disguise secret crude shipments, and Iranian Oil Minister Bijan Namdar Zanganeh told reports that his country would bring its oil to market using “other ways.”
Despite these tactics, many experts are doubtful that the small amount of Iranian oil reaching buyers after November will affect global crude prices.
“Exports at these levels will be important in cushioning the financial blow to Iran, but will not have a major impact on the world market,” said Qamar Energy CEO Robin Mills during an interview with Bloomberg.
While the Japanese commitment to uphold U.S. sanctions on Tehran provided the crude market with an early boost, the increase was impeded by the increased supply from the United States and other OPEC countries.
On Monday, the United States announced it would release as much as 11 million barrels of oil from the Strategic Petroleum Reserve. According to Yahoo Finance, the new fuel is expected to hit the market in October and November and is intended to help ease the country’s budget deficit. Exxon Mobil, Phillips 66, and Valero Energy Corporation are just some of the firms that have agreed to purchase the barrels.