The United States has tightened sanctions on Iranian oil on\nThursday in an attempt to cut the Islamic Republic’s exports to zero, which\ncould lead to a new era of uncertainty in the oil market.<\/p>\n\n\n\n
President Donald Trump has restored the sanctions imposed by\nObama last year, but granted waivers to eight countries, allowing them to\nimport limited quantities of Iranian crude. Last week, his administration\nsurprised the market by announcing that it would not extend the waivers.<\/p>\n\n\n\n
Analysts were expecting Trump to tighten the waivers every\nsix months, allowing China, India, Turkey and other importers to gradually\nabandon Iranian crude purchases. The abrupt move to cut Iranian exports\nthreatens to eliminate most of the shipments, which recently totaled more than\n1 million barrels per day, or nearly 1 percent of the global consumption. To\nfill this gap and prevent rising fuel costs, Trump turned to his allies in\nSaudi Arabia, the world’s largest oil exporter.<\/p>\n\n\n\n
But the Saudis have not made firm commitments and are\ncontinuing to consider extending a six-month deal to limit production with the\nOPEC member states and other producers. This raises concerns about the period\nof supply contraction and high oil prices.<\/p>\n\n\n\n
Analysts said that “President Trump\u2019s decision to zero\nout waivers for importers of Iranian oil on May 2 represents an audacious act\nof oil brinkmanship as the strategy of keeping prices contained now rests\nalmost exclusively on Saudi Arabia\u2019s willingness to open the taps amid\naccelerating global supply outages,”<\/p>\n\n\n\n
Oil prices jumped initially to a six-month high after Trump\nannounced the cancellation of the waivers. Brent crude rose $75.60 and US crude\nrose to $66.60. Prices were trading around $71 and $62, respectively, on\nThursday.<\/p>\n\n\n\n
Analysts consider that the stricter sanctions alone would\nnot affect supply, but would make the oil market more vulnerable to shortages\nleading to higher fuel costs.<\/p>\n\n\n\n
This is partly because the oversupply in the oil market is\nslowly disappearing, and supply and demand are in equilibrium. Some analysts\nbelieve the market is suffering from a slight undersupply. At the same time,\nsupply disruption and threats of further interruptions are widespread.<\/p>\n\n\n\n
US sanctions on PDVSA have accelerated the decline in crude\nproduction in the country. In Libya, renewed conflict between rival leaders has\njeopardized OPEC oil supplies. Nigeria, Africa’s biggest producer, has also\nsuffered an outrage. In Europe, the polluted oil sent by a pipeline from Russia\nhas disrupted supplies to refineries in several countries.<\/p>\n\n\n\n
At the same time, OPEC and its allies, including Russia, are\nstill trying to keep 1.2 million barrels per day off the market. Trump is\nputting pressure on the Saudis and OPEC to reverse, but many analysts doubt the\nso-called OPEC alliance would take his advice.<\/p>\n\n\n\n
The group increased production before US sanctions on Iran\nin November, and was surprised when Trump granted import waivers. OPEC’s oil\nflood and weaker-than-expected sanctions contributed to the collapse of Brent\nfrom $86 to $50 a barrel and pushed producers to agree in December to cut\noutput.<\/p>\n\n\n\n
Saudi Arabia needs oil prices around $80 a barrel to balance\nits budget. The Kingdom\u2019s oil minister, Khalid al-Falih, has been holding his\ncomments since Trump announced the sanctions waiver, stressing that the kingdom\nwill respond to the shortage. However, the country pumps about 500,000 bpd\nunder its quota for the OPEC deal, so the Saudis can raise production and keep\nthe OPEC deal in place. The group meets on June 25 and 26 to discuss the\nextension of the agreement.<\/p>\n","protected":false},"excerpt":{"rendered":"
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