However, after the latest waiver on sanctions, US president Donald Trump pledged that this would be Iran’s “last chance” to comply with the nuclear accord.
The original deal was approved in 2015 under the Obama administration, following the International Atomic Energy Agency’s verification Iran’s compliance.
Trump is a fierce critic of the nuclear pact, which lifted many of the restrictions on Iran to trade internationally. He has said that if congress and the European signatories did not “fix the deal’s disastrous flaws”, the US would withdraw.
The recent removal of Rex Tillerson as US Secretary of State could also be another move to toughen up the country’s foreign policy in dealing with certain countries, Gibson said.
According to the UK’s Financial Times, Tillerson, together with US Defence Secretary Jim Mattis, argued that “torpedoing the deal” would be disastrous. As well increasing tension in the Middle East, it would also deepen America’s split with its European allies. In contrast, Tillerson’s replacement, hardliner Mike Pompeo advocates quitting the Iran deal.
Putting aside all the political rhetoric, any change in US policy towards Iran would probably have little impact on the current status quo in the tanker market, Gibson said.
Although most economic and financial sanctions were lifted, difficulties with US dollar transactions would again prove a major headache should sanctions be re-installed.
Prior to the January, 2016 deal, European companies were reluctant to resume business with Iran, due to the possibility of unwittingly violating secondary sanctions, or damaging relationships with US banks.
Acting alone, the US would have little impact unless Trump can persuade other nations, such as China, India and Japan, which have continued to import Iranian crude during the sanction period, to join any embargo.
Should the US manage to persuade the original signatories of the Joint Comprehensive Plan of Action (JCPOA) to support it, then Iran would be in trouble. Given this scenario, NITC VLCCs could be forced to act as storage hulls for unsellable Iranian barrels as before.
However, today there are five less VLCCs available, following NITCs demolition sales last year. Iran could possibly attempt to purchase tonnage, through a friendly partner or supportive nation not on the US radar.
Tanker owners presently facing extremely challenging markets might find it tempting to sell off older tonnage; however, this is unlikely to work. Iran might also consider placing new VLCC orders, probably in China, although this will not help in the short term, Gibson said.
In terms of trade, taking Iranian barrels out of the market would have limited impact, as other Middle East producers would be willing to pick up any shortfall in supply and as a consequence, tonne/miles would be unaffected. However, the removal of several Iranian VLCCs back to floating storage could make a real difference, as Iran controls 5% of the current fleet.
In the current political climate, Trump is unlikely to gain support from the European JCPOA signatories, as they no longer have the appetite for the cause, urging the US to respect the integrity of the original agreement.
Since the embargo was lifted, many nations have established strong business relationships with Iran, including several high-profile US companies. Those nations purchasing Iranian barrels are also unlikely to want to change supplier for various reasons.
The May deadline for the deal coincides with the US preparations for talks with North Korea, so Trump could play this one of two ways - making strong demands on Iran, thus sending out a signal that the US doesn’t want to negotiate with rogue states, or most likely, more sabre rattling from the White House and the waiver moved forward again, Gibson concluded.