The oil supply shortage in the Mediterranean market, which will emerge once the U.S. sanctions targeting Iranian oil come into force on Nov. 4, is predicted to direct the market toward Russian Ural oil, a case that will eventually lead to intensified sea traffic in Istanbul and the Çanakkale Straits.
Due to effect delivery and payment processes, the effects of the sanctions to be imposed on Iran started to impact the market on Sept. 20, according to information compiled from the Iranian Embargo-Turkish Straits report prepared by the Bilkent University Energy Policy Research Center (EPRC).
Tanker traffic and delays in the Turkish Straits will increase refinery costs in the Mediterranean market, according to the report and thus, increase the pressure on the prices of petroleum products in the market in which Turkey is also also a player.
On the other hand, according to the report, it will not be possible for the Organization of Petroleum Exporting Countries (OPEC) to compensate for the supply gap that will occur after the sanctions are levied against Iran.
Saudi Arabia sends its oil to the Asian market dominated by China, while Iraq sends its oil more to European and American markets.
Moreover, Saudi Arabia is not expected to increase production in its oil fields due to technical problems in the medium and long term. It is also estimated that Iraq will not be able to close the gap due to its export capacity in Basra.
U.S. President Donald Trump signed an executive order on May 8 to re-impose sanctions on Iran and abandoned the nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA) that came into force in 2015 through joint efforts of the U.S., the U.K., France, China, Russia, Germany and the European Union.
The first round of U.S. sanctions targeting the automotive sector and financial transactions were reinstated on Aug. 6, and the second round that will hit Iran's oil and natural gas trade starts on Nov. 4. The United States seeks to block Iran's international oil sales with the move.
Meanwhile, Iran's largest sector has already seen declines in exports.
Iran had been trading 2.5 million barrels per day (bpd) before the U.S. and U.N. sanctions and the crude trade volume hovered around 1 million bpd to 1.2 million bpd during the sanctions period from 2013 to 2015. After the JCPOA and the EU agreed to relieve sanctions imposed on Iran on the condition that the country curb its nuclear capacity in July 2015, Iran's crude exports saw a slight increase in 2016, reaching 1.9 million bpd and jumped to 2.1 million bpd in 2017, according to data compiled from OPEC.
While the rising trend continued in early 2018, reaching as high as 2.8 million bpd in April, Iran's oil sales abroad have seen considerable decreases, falling 2.01 million bpd and 1.31 million bpd by Sept. 13 this year, according to Bloomberg data.