U.S. government deals allowing hundreds of thousands of barrels a day of Iranian oil to flow onto world markets are driving down prices


Washington’s deals letting Tehran sell hundreds of thousands of barrels of oil prompts kingdom to advocate production cut, against Trump’s wishes. U.S. government deals allowing hundreds of thousands of barrels a day of Iranian oil to flow onto world markets are driving down prices and putting Saudi Arabia on a collision course with Washington as the kingdom scrambles to cut supply.

After the Trump administration threatened a complete halt to Iranian oil exports, prompting other producers to boost output to compensate, the U.S. authorized exemptions to eight countries without disclosing the terms. American officials now are forecasting a cut to Iranian crude sales by April of at least 40% to 900,000 barrels a day from the country’s pre-sanctions level, say people familiar with the sanctions waivers.

The shifts are whipsawing oil markets and sparking U.S.-Saudi tensions. While Saudi Arabia wants to trim production to boost oil prices to about $80 a barrel in support of its economy, Saudi advisers say, President Trump warned against a production cut and called for lower prices.

Saudi oil officials say they are considering advocating a production cut of as much as 1.4 million barrels a day at the Organization of the Petroleum Exporting Countries’s next meeting on Dec. 6. But OPEC officials say they are having difficulty calculating how much to produce due to the U.S. secrecy on its Iran sanctions efforts. That opacity, they say, already tripped up an OPEC-Russia alliance formed to pump extra oil into markets to stabilize supplies and prices.

In just over a month, Brent—the global benchmark—fell more than 21%. The administration isn’t saying how much Iranian oil the eight countries are allowed to buy. The countries have negotiated limits in secret, bespoke deals with the U.S. The lack of detail about the size of the waivers is “confusing for markets,” said Sara Vakhshouri, president of Washington-based consulting firm SVB Energy International.

Buyers too are withholding details of their agreed-to reductions. “It’s confidential,” India’s oil minister Dharmendra Pradhan said when asked about his country’s deal with Washington. U.S. officials say they won’t disclose their agreements with Iran’s oil buyers because they fear complaints that some were asked to cut more than others.

“We do not discuss the private diplomatic discussions that led to agreements with the various jurisdictions on the volume of oil imports,” a State Department spokesperson said. The Trump administration’s sanctions are aimed at containing the Islamic Republic’s regional influence and military capabilities, a goal Saudi Arabia shares.

But Saudi officials say they feel betrayed by the Trump administration’s lack of candor around the sanctions and are going to chart an oil policy that is more independent of American goals. They say Mr. Trump strong-armed Prince Mohammed into throttling up oil output to record levels to cool off prices ahead of the revival of tough sanctions on Iran’s petroleum industry on Nov. 5.

Mr. Trump told Saudi leaders there would be no exceptions from sanctions for Iranian oil buyers, the officials said, which would have potentially wiped over a million barrels of oil off the market and sent prices soaring. And if the Saudis didn’t raise production to make up for Iranian losses, Mr. Trump threatened to support a congressional bill allowing antitrust action against OPEC members, who he says act as a cartel, the advisers said.

Instead the Trump administration issued the exemptions—a move that relieved market worries about Iran’s supply outages and has sent oil prices skittering over the past week. “They feel they were used,” said a Saudi adviser of the kingdom’s leaders. The White House referred questions to the State Department, where officials pointed to comments Secretary of State Mike Pompeo made on Nov. 1.

The Kingdom of Saudi Arabia has been a great partner with us in pushing back on the Iranian regime in an effort to change its behavior by assisting and ensuring that there is sufficient crude oil in the marketplace,” Mr. Pompeo said.

Crown Prince Mohammed bin Salman’s attention has turned to his oil-dependent economy as the kingdom’s leadership faces its biggest crisis in a generation with the murder of journalist Jamal Khashoggi in Istanbul by a group of Saudi government operatives. In just over a month, oil prices have fallen far below the $88 a barrel that the International Monetary Fund says Saudi Arabia needs to balance its budget.

“Saudi Arabia has major financial commitments to meet and price drops don’t help. $80 a barrel is a sweet spot for the government,” said a senior Saudi energy adviser.

A strong economy is important as the kingdom wages an expensive war in Yemen and girds for an economic showdown with Iran. Oil revenue is even more important now, as the fallout from Mr. Khashoggi’s death has complicated Prince Mohammed’s attempts to ramp up non-petroleum sectors, said Adel Hamaizia an associate Middle East fellow at London’s Royal Institute of International Affairs.

The uproar has brought a “cocktail of problems,” said Mr. Hamaizia, a former Saudi government adviser. He said Saudi Arabia could postpone economic reforms, such as phasing out fuel subsidies, to lure industrial investors.

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More News On Crude Oil. Saudi Arabia, Others Inch Closer to Oil Output-Cut Pact. Saudi representatives said Sunday that the kingdom would slash its exports unilaterally next month, as a broader OPEC alliance debated — but didn’t agree to— a collective production cut.  Meanwhile, Russia, the world’s largest producer, sent mixed signals on whether it would pull back on supply—after moving in lockstep on such matters with OPEC for more than two years.

Russia’s oil minister Alexander Novak said he was open to crude production cuts if the coalition reaches a consensus, and would adhere to any decision it makes. But he also said Russian production had “reached a certain level where we have stabilized and we will be fluctuating around that level in coming months.”

Saudi Arabia, Russia and other producers met here in the United Arab Emirates capital over the weekend to debate whether reductions of about one million barrels a day might be necessary next year, with a decision expected at an OPEC meeting next month.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, and Russia, which heads an alliance of producers outside the cartel, agreed to boost production at a meeting in June over fears U.S. sanctions on Iran would trigger shortages.

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Oil prices extended declines after the U.S. said last week that it would allow eight countries to continue buying sanctioned Iranian crude.

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