Any country, or company, trading with Iran without U.S. consent after sanctions kick off risks getting cut off from the American financial system.
Iran's biggest oil customers - all in Asia - have been seeking sanctions waivers to allow them to continue buying some of its oil and have argued that a total ban would spur a further rally in the price of crude.
In the first three weeks of October, Iran's crude and condensate exports averaged around 1.90-1.95 million bpd according to Platts ship tracking data, but exports could be even higher due to the Iranian tactic to switch off tracking devices to hide some volumes and destinations of its oil exports, sources say.
"While the gain in USA crude inventories was in line with the market expectation, it's still a sixth consecutive week of increase on the back of rising American production", Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said by phone from Tokyo.
Saudi Arabia increased output by 150,000 barrels to 10.68 million a day last month, the highest in Bloomberg data going back to 1962, while Iran's production slipped by 10,000 barrels a day to 3.42 million, the lowest since March 2016.
India and other key importing countries have been engaged for months with the USA for a waiver. In its plan for the 2018-19 fiscal year, set before the United States announced its JCPOA withdrawal, India was to import 25 million metric tons of Iranian oil, or about 490,000 bpd.
India, which is Iran's second-largest customer for oil, has said it can not immediately replace its Iranian imports and is seeking a waiver, while Turkey has also sought an exemption from the U.S. Treasury Department.
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The sources said New Delhi and Washington "have broadly agreed on a waiver", detailing that "India will cut import by a third, which is a significant cut".
According to sources, Indian oil firms will have to reduce their imports significantly as a condition of the waiver.
US national-security adviser John Bolton says the White House wants sanctions on Iran's oil sector to put a strain on Iran's economy, but it does not want to harm "friends and allies" that depend on the oil.
How companies will pay for Iranian oil is still being negotiated between India and Iran, sources said, adding that it's likely that the two countries will stick to the existing mechanism under which 55% of payment is made in euro and 45% in rupee through UCO Bank. "And the sanctions that are reimposed on November 5 will target critical sectors of Iran's economy, such as energy, shipping and the ship-building sectors, as well as the provision of insurance and transactions involving the Central Bank of Iran and designated Iranian financial institutions". The leader said it's possible Iran will face more hard times ahead, but asserted that the government will use all its power to reduce any problems. "Even if it's temporary, concerns over a supply glut are weighing on prices as Saudi Arabia, Russia and the US all increase production".
Bolton also issued unsubtle warnings to Iran's leaders: "We are watching, and we will come after you". Turkish Energy Minister Fatih Donmez announced on Friday he had heard rumors that the USA is going to exempt Ankara from the upcoming sanctions.
India prefers Iranian oil as it comes cheap and suits many refineries' technical configuration.