Global crude oil prices were unmoved on Friday as the week ended before tough U.S. sanctions targeted Iran’s energy, finance, and shipping sectors. The measures that took effect November 5 are the second set of sanctions imposed against Iran by the administration of President Donald J. Trump since he announced the U.S. withdrawal from the 2015 nuclear deal, the Joint Comprehensive Plan of Action, in May.

One reason for the market’s apathetic response was the surprise decision by the Trump administration to grant waivers to eight countries that import oil from Iran, having previously declared that the aim of the sanctions was zero exports of oil by Iran. What is not yet clear is just how much oil these countries will be able to import from Iran and for how long. What is obvious is that Washington was wary of administering a shock to the market, where oil prices in October rose above $85 per barrel for benchmark Brent blend crude.

The administration granted waivers to China, Japan, South Korea, Taiwan, Turkey, India, Italy, and Greece. But there is a catch. Because foreign financial institutions and banks risk incurring sanctions themselves if they conduct transactions with Iranian banks, Tehran would likely not see a penny from oil sales under these waivers until sanctions are lifted. The administration of former President Barack Obama had granted waivers to mainly Asian buyers of crude oil before the JCPOA was concluded so long as they kept their purchases at agreed levels.

The new energy sanctions are far more restrictive than those the United States imposed on Iran before the agreement of the JCPOA in that they include a ban on the import of Iranian gas and condensates. While Iran is not a large exporter of gas – it has one long-term contract with Turkey and swap deals with some former Soviet republics – it is a very large producer and exporter of condensate, a very light petroleum product that is a byproduct of natural gas production. The United Arab Emirates, which has wholeheartedly supported the reimposition of sanctions against Iran, was among the key customers of Iranian condensate. Qatar had stepped in to provide the Jebel Ali condensate refinery with product when the UAE, under U.S. pressure at the time, halted purchases of Iranian condensate. However, Qatari condensate is now not an option for the UAE due to the continued embargo on the emirate and sanctions imposed on Doha by the UAE, Saudi Arabia, Bahrain, and Egypt.

Iran’s crude oil exports have already fallen dramatically as buyers of Iranian oil reduced their purchases during the wind-down period leading up to the new round of sanctions. According to the International Energy Agency’s latest Oil Market Report, supply from Iran in September sank to a 2 ½-year low. However, production fell by only 180,000 barrels per day (b/d) month-on-month to 3.45 million barrels per day (mb/d), suggesting that Iran is storing crude and condensate on tankers and storage tanks at its export terminal on Kharg Island.

With the likely impact of sanctions already built into the market, oil prices are likely to remain around their current level from $70-$75 per barrel and may even soften further in the weeks ahead in the absence of any new supply shocks and given that the United States appears to have stepped back from its zero-export target from Iran. Iranian oil exports have fallen by 800,000 barrels per day (kb/d) so far from a peak of around 2.7 mb/d in June.

The new sanctions come at a time when global oil supply is growing at a relentless pace, the International Energy Agency has noted, even as Venezuelan production deteriorates, and Iranian flows decline. World oil production was estimated at 100.3 mb/d, unchanged in September from August, matching demand. More significantly, global supply was up by 2.6 mb/d with non-OPEC producers accounting for almost the entire increase. Should Iranian oil exports decline further, Saudi Arabia, Kuwait, and the UAE could boost production further. They have already raised output to offset the Iranian and Venezuelan decreases.

“In fact, since May, the month before OPEC and non-OPEC countries agreed to ease supply curbs, the 24 Vienna Agreement producers have raised output by a net 640 kb/d. Excluding Venezuela and Iran, the increase is 1.2 mb/d. Of this, Saudi Arabia has contributed almost 500 kb/d and record-breaking Russian producers have added nearly 400 kb/d. Supplies are also reaching record levels in the US and Canada despite infrastructure constraints and heavily discounted local crude prices,” the IEA reported.

U.S. Secretary of the Treasury Steven Mnuchin said Washington is determined to strictly enforce the sanctions but does not want to upset market balance or U.S. allies in the process. But are there political considerations as well in stepping back from the zero target? The new sanctions have come into force a day before the November midterm elections and the Trump administration may have deemed it unwise to go hard with an action that might hurt U.S. consumers at the pump.

During the last round of sanctions, Iranian crude exports were cut by 1.2 mb/d and this time the reduction could be larger, though it isn’t known what volumes of Iranian oil will flow under the waivers. So far, Iran’s major customers in Asia have cut their imports from Iran by more than 40 percent and much will depend on the volumes they are allowed to import under the waivers since China, India, South Korea, and Japan make up Iran’s largest crude export markets.

The JCPOA was designed to restrict Iran’s ability to produce fissile material for nuclear weapons in exchange for phased economic sanctions relief. Although Tehran has complied with the obligations of the agreement, Trump has dismissed it as a bad deal and says he wants to curb Iran’s missile capability and force a change in the Islamic Republic’s behavior.

Although the other members of the JCPOA have not abandoned the deal, third parties might face penalties, which explains why big oil companies like France’s Total have pulled out of a deal to develop a phase of Iran’s massive South Pars gas field. European imports of Iranian crude oil have also slumped in the lead-up to the new sanctions. Mnuchin has said that SWIFT, the global banking service based in Brussels, could also be subject to sanctions if it works with Iranian institutions blacklisted by the United States. This will hamper Iran’s ability to pay for goods and services that are excluded from the sanctions because, as happened during the last round of sanctions, international banks would not allow any transactions involving Iranian financial institutions. Given the large number of companies and individuals on the U.S. Treasury’s sanctions list, the due diligence required is likely to complicate trade dealings with Tehran.

For Iran, the sanctions could not have come at a worse time for the clerical regime. Although Iranian officials are playing down the impact of the new sanctions, public discontent over the faltering economy and the slump in the value of the Iranian rial have led to protests across the country in recent months. But Iran is no stranger to sanctions and while it does depend on oil exports for a significant percentage of foreign export revenue, its economy is more diversified than other Middle Eastern oil producers, including Saudi Arabia, where oil export earnings contribute much more to national budgets. However, the absence of foreign direct investment will delay Iran’s ability to raise its oil and gas production capacity beyond current levels given years of underinvestment during the previous round of sanctions. As holder of the world’s fourth largest crude oil reserves and the second largest natural gas reserves, much of which are yet to be developed, Iranian oil and gas will be needed in the future to meet growth in demand for fossil fuels.