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HOUSTON – The world's oil producers and their customers entered a new period of uncertainty with the entry into force of new US economic sanctions against Iran on Monday.
After withdrawing from the seven-nation agreement negotiated with his predecessor to curb Iran's nuclear efforts, President Trump wants to pressure Iran to put a stop to his political and military activities throughout the Middle East. And the administration is betting that its policy will inflict suffering on Tehran without provoking a surge in oil prices or an aggressive reaction.
This is a gamble that could possibly be expensive for US consumers at the gas pump. But the initial impact was relatively benign. Oil prices have fallen in recent weeks, even with sanctions on the horizon.
What do the sanctions do?
The sanctions target not only Iranian oil exports, but also international shipping companies, banks, insurers and port operators doing business with Iran. US trade with Iran is already tightly controlled, but the administration threatens to exclude from the US financial system international companies that negotiate, finance or otherwise serve the interests of Iran's oil exports.
Companies do have the choice of doing business with Iran or with the United States, which has a much larger economy and a more lucrative market.
"The new sanctions will deliver an indisputable message to Tehran: change your attitude or suffer the consequences," Secretary of Energy Rick Perry said in a press release. commentary in the Wall Street Journal.
The Trump administration has granted exemptions to eight countries, including major buyers of Iranian crude oil such as China, India and Japan, allowing them to continue their imports. US authorities said the waivers were temporary and conditioned by regular import reductions.
How did the markets react?
While oil prices rose slightly on Monday, the oil market surprisingly held up well. Many energy experts were expecting soaring oil prices, as was the case when the Obama administration launched an international sanctions effort in 2011 and 2012 to force Tehran to the nuclear negotiating table and push the oil at over $ 100 a barrel. This time, the international price is about 73 dollars a barrel. The US benchmark, West Texas Intermediate, exchanges about $ 10 less, after falling more than $ 10 last month.
This modest response is all the more remarkable as Iran's oil exports dropped to about 1.3 million barrels a day, compared with 2.4 million barrels a day last spring, as customers sought out other suppliers in the meantime. Sanctions. Matt Badiali, senior analyst at Banyan Hill, a financial research and publishing firm, predicts that sanctions will reduce an additional 900,000 barrels over the next year.
In total, sanctions would reduce about 2% of world oil reserves.
Oil traders have been calmed by government overrides, indicating a more gradual approach allowing European and Asian customers to find suppliers to replace Iran's crude.
Prospects for tightening the oil market pushed prices up earlier this year, encouraging producers to pump more oil. As a result, the lost Iranian barrels have been replaced by oil from the United States, Russia and Saudi Arabia. The United States and Russia have both achieved record production of more than 11.3 million barrels a day, while members of the Organization of Petroleum Exporting Countries have increased production to the highest level in two years, despite declines in Venezuela and Iran.
As more and more pipelines and export terminals are being built in Texas and along the Gulf of Mexico, US exports could increase dramatically. At the same time, demand for oil has slowed in China and developing countries due to slowing economies. Both developments limit prices.
What is the effect on consumers?
Until now, drivers have been spared from major pain.
The national average price of a gallon of regular gasoline Monday was $ 2.76, according to the AAA auto club, 5 cents less than a week ago and 15 cents less than the last month. Still, the average is 24 cents higher than it was a year ago.
However, according to some experts, oil reserves could tighten over time, especially during the summer driving season, which would drive up prices.
A more expensive oil also means higher prices for aviation fuel, which is often passed on to the traveling public. They can also result in higher prices for plastics – and for natural gas, which can affect electricity rates.
What are the prospects?
Everything will depend on how Iran reacts to the sanctions and its success in smuggling oil through Kurdistan and Turkey. If Iran threatened to block the Strait of Hormuz, a crucial passage for oil from the Persian Gulf, prices would likely rise. Any military movement or cyberattack against Saudi Arabia or Israel could have a similar effect. An escalation of hostilities in Yemen, where Iran supports a militia in a proxy war with the Saudis, could threaten other crossings for oil transport.
Some experts in the oil sector believe that global supply is enough to prevent sanctions from raising prices.
"I think that there will be no impact on oil prices that can be attributed to the sanctions on Iran," said Sadad Ibrahim al-Husseini, former executive vice president of Saudi Aramco, "due to the abundance of new supplies made available by OPEC and Russia, as well as Brazilian offshore production and shale oil developments that may respond to everything many years. "
Barclays analysts expect Brent crude, the global benchmark, to sell next year at $ 72 a barrel on average, close to its current level. But some Western experts predict a much higher price.
"The market is overestimating the amount of oil that could come in," said Banyan Hill's Badiali. "Can the world produce an extra 500,000 barrels a day? I do not see it. "
And Badr H. JafarPresident of Crescent Petroleum, a company in the United Arab Emirates, said Saudi Arabia may not be able to maintain its high performance. "With the persistent production problems in Nigeria, Venezuela, Angola and Libya, along with the reduction in Iranian imports, we could see prices rise again to $ 80," he said.
