US to Waive Iran Oil Sanctions on June 19, Sending Crude Toward the $60s

Iran Oil Set to Return as Prices Slide

US to Lift Curbs Immediately After June 19 Ceasefire MOU Signing

Brent Drops Back Into the $70s

The US plans to immediately waive sanctions on Iranian crude when a 60-day ceasefire memorandum of understanding is signed on June 19. The move would increase global oil supply over the medium to long term, and crude prices have already fallen sharply.

Bloomberg and other media outlets reported on June 16 that Washington pledged to effectively lift restrictions on Iranian crude as soon as the agreement is formally signed. The US then plans to end all economic sanctions on Iran according to the timetable in a final agreement to be negotiated during the 60-day ceasefire period. Sanctions on financial, insurance and shipping services needed for oil exports are also set to be waived during that period. The US and its Western allies have enforced tough sanctions on Iran's oil exports since 2012.

Trump administration officials had previously said sanctions relief would be phased in if Iran carried out nuclear-related commitments such as diluting and disposing of enriched uranium. But the draft MOU made public sets out a different sequence: sanctions first, compliance later. That would allow Iran to return to the global oil market before fulfilling pledges such as disposing of enriched uranium.

The news extended losses in crude prices on June 16, pushing benchmark contracts to their lowest levels in more than three months. Brent crude for August settlement fell 5.1% to close at $78.96 a barrel on ICE Futures Europe. West Texas Intermediate for July delivery tumbled 5.8% to settle at $76.05 a barrel on the New York Mercantile Exchange.

World's No. 3 Oil Reserves Poised to Re-enter Market, Adding to Expectations of a Steeper Price Drop as Strait Shipping Recovers

Economic Sanctions to End During 60-Day Talks, Including Banking, Shipping and Insurance Services

A draft of the 60-day ceasefire memorandum of understanding electronically signed by the Donald Trump administration and Iran on June 14 includes sweeping economic incentives for Tehran. It marks a sharp reversal by a US administration that had once threatened to wipe out Iranian civilization.

Sanctions to Be Lifted Immediately

The 14 provisions disclosed by Bloomberg on June 16 show the US promising to end all economic sanctions on Iran in line with the schedule of a final agreement after the 60-day negotiation period. Trump administration officials had previously said sanctions relief would be offered as an incentive for Iran to carry out nuclear-program commitments, including the dilution and disposal of enriched uranium.

But under the draft MOU, the US agreed to effectively remove sanctions tied to Iranian oil exports as soon as the signing takes place. The document says that from immediately after the MOU is signed until the day sanctions are formally lifted, the US Treasury Department will issue waivers covering Iranian crude, petrochemical products and their derivatives, along with all related services including banking, insurance and shipping. If that language stands, Iran would return to the global oil market before meeting commitments such as disposing of enriched uranium.

The US and its Western allies have imposed various sanctions on Iran since the 1979 Islamic Revolution. Restrictions on Iranian oil exports began in earnest in 2012. Since then, Iranian crude has been reduced to a discounted product that could only be exported after steps such as illegally changing its declared origin in third countries to evade sanctions. Most shipments moved through Southeast Asia to buyers such as China and India.

Sanctions were temporarily lifted in 2016 under the Joint Comprehensive Plan of Action reached during Barack Obama's administration, and countries including South Korea imported substantial volumes of Iranian crude during that period. Sanctions were reimposed in 2018.

Linked to Reconstruction Fund

If Iranian crude becomes fully tradable in the international market starting June 19, the impact on global oil supply could be significant. Even if traffic through the Strait of Hormuz takes time to normalize, lifting sanctions on Iranian oil could speed the decline in prices.

Expectations are also rising that shipping through the strait could normalize faster than anticipated. Goldman Sachs, cited by CNBC, lowered its forecast for Brent crude in the fourth quarter of this year to $80 a barrel from $90, and cut its 2027 outlook to $75 from $80, reflecting a faster-than-expected recovery in oil exports from the region.

Large-scale investment through a reconstruction fund could also raise Iran's oil output over the longer term. Iran's annual oil production is estimated at 20.8 billion barrels. Before the war, it was producing about 4.5 million barrels a day, ranking sixth in the world. Exports available for overseas sales after domestic consumption stood at 1.66 million barrels a day at the end of last year.

Washington's plan is to attract private-sector investment from allies including South Korea, Japan, Europe and the US as part of the reconstruction fund. That would make it harder for the US to try to reimpose economic sanctions on Iran even after the 60-day ceasefire period ends. It also leaves Washington with limited leverage if Iran proves reluctant to dispose of nuclear material.

Another variable is growing bipartisan pressure in Congress to formally debate the agreement. Semafor reported that Senator Bill Cassidy, a Louisiana Republican, said any US-Iran nuclear accord should be ratified by a two-thirds vote in the Senate.

Lee Sang-eun, Washington correspondent, Korea Economic Daily, selee@hankyung.com