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US Sanctions Iran Offer Little Clarity On Oil Market Path, Rystad Says

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The latest US measures against Iran are unlikely to significantly deepen the hit to the country's oil revenues unless Washington succeeds in persuading China to curb purchases, Rystad Energy strategists said in a note on Monday.

According to Jorge Leon, senior vice president and head of geopolitical at Rystad Energy, China is the key.

"Iranian crude exports have already fallen sharply because of the blockade, and Beijing is essentially the only significant buyer left," Leon said, adding, "Unless China materially reduces purchases further, the additional impact on Iranian oil revenues could be relatively limited."

The measures come after a 60-day memorandum of understanding expired on Aug. 16 without a deal or plans for further negotiations, while a naval blockade and threats of escalating attacks have increased the prospect of a prolonged standoff.

Rystad now forecasts a "protracted stalemate" as the most likely outcome in the coming months, with oil flows via the Strait of Hormuz remaining depressed before gradually recovering.

Rystad's latest base case assumes traffic through the strategic waterway settles at about 3 million barrels per day, well below pre-conflict levels, as producers make greater use of alternative export routes.

The immediate measures look less dramatic than the rhetoric, Leon said, adding that the key question is how Washington will enforce secondary sanctions against Iran's remaining trading partners.

China is central to the outlook. Iranian crude exports have already fallen because of the blockade, while Beijing remains essentially the country's only significant buyer.

Rystad said the US is seeking to broaden the military blockade into a wider economic squeeze, but Iran's economy has adapted to decades of sanctions, limiting the likelihood that additional economic pressure alone will force Tehran to capitulate.

For oil markets, the greater risk may instead come from Iran's response.

"Tehran has threatened to treat countries supporting the US campaign as participants in the war and has again raised the prospect of preventing oil from leaving the Persian Gulf," Leon said.

He noted that the muted response in oil prices so far suggests traders are making a similar distinction. The market is likely to focus less on the announcement itself and more on whether China complies with the new measures and whether Iran retaliates.

"The actual announcement came across as much less dramatic than anticipated, with a wide gap between the rhetoric and the substance, at least going by the initial comments," Leon said, adding that so far the new sanctions campaign looks "much more like an expansion of the existing sanctions regime than a fundamentally new economic weapon."

Going forward, the outlook leaves the Hormuz as the key variable for oil markets. Persistent disruption would keep regional exports well below normal levels, while any sustained improvement in shipping would gradually ease supply concerns.

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