US oil sanctions hit Iran without price hike

HOUSTON – When President Trump announced in May that he was going to withdraw the United States from the nuclear deal negotiated with Iran in 2015 by the Obama administration and five other countries and reimpose sanctions in the country, this decision could be catastrophic.

If Mr. Trump's approach worked too well, oil prices would rise and hurt the US economy. In case of failure, international companies would continue to trade with Iran, leaving the Islamic Republic unscathed, rebellious and free to resume its nuclear weapons program.

But politics has been effective without these two bad consequences, at least until now.

Nearly two months before the entry into force of the US oil sanctions, Iran's crude exports are plummeting. International oil companies, including those from countries still engaged in the nuclear deal, are abandoning agreements with Tehran.

And remarkably, the price of oil in the United States has only risen modestly as gas prices have essentially remained stable. The current world oil price hovers around $ 80 a barrel, $ 60 less than the peaks of a decade ago.

"The president is doing the opposite of what the experts said, and it seems to work," said Michael Lynch, president of Strategic Energy and Economic Research, a research and consulting firm.

The first signs of foreign policy success could benefit Mr. Trump politically, as Republicans try to keep control of Congress. The president and lawmakers allied to him could attest to the administration's aggressive stance against Iran as proof that its unconventional approach to diplomacy has been far more fruitful and far less expensive than the Democrats have been willing to do. recognize.

Of course, the tactical advantage of the administration could be short-lived if Iran resorted to cyber-attacks or militarily, incited militia violence in Iraq or relaunched its nuclear weapons program.

The most important reason why oil price rises have been false is that there are a lot of oil spills in the world. The United States has become a huge exporter of oil in recent years and is currently shipping about the same amount – more than two million barrels a day – that Iran has made earlier this year.

Trade tensions and economic problems in developing countries such as Turkey and Argentina could also slow growth in energy demand.

Another thing for Mr Trump is that, although the governments of Europe and Asia have publicly opposed his decision to withdraw from the nuclear deal, many companies in these regions have made different calculations. . They concluded that it was unwise financially to risk investment and trade with the United States in doing business with Iran.

Until the announcement made in May by Mr Trump, the Western allies considered that the nuclear deal with Iran was a success. In exchange for accepting strict limits on its nuclear program and its international monitoring, Iran has been allowed to reenter the global oil market. The agreement lifted restrictions on foreign companies operating in Iran and allowed the country to access assets frozen abroad.

After November 4, companies that buy, ship or supply Iranian oil shipments may be excluded from the US market and banking system unless exemptions from the administration are granted.

Trump administration officials say his sanctions are aimed at punishing Iran for its interventions in Syria, Yemen and other countries.

For Iran, the moment can not be worse. The country has lost influence over oil prices as other producers have overshadowed its energy industry, which has not kept up with technological advances.

At the beginning of the century, Iranian officials could shake the oil markets by organizing military maneuvers or by hinting that they would reduce their supplies. At the time, US oil production was declining and world demand for crude oil was increasing.

But these days are long gone. Like the United States, countries like Canada and Brazil also export more oil. Russia, Saudi Arabia and Iraq have also increased production, helping to control oil prices. Saudi Arabia and its allies in the Persian Gulf are only too happy to support sanctions against their main rival, Iran, by expanding their exports.

This provided a buffer for the global oil market as Iran's exports fell by more than 25 percent, or about 600,000 barrels a day, between June and early September. Exports are expected to fall by an additional half a million barrels as US sanctions come into effect. In total, exports could fall from 2.7 million barrels this year to less than one million in 2019, bringing the country's exports to less than 1% of the world market, against around 3% at the beginning of the year.

This would weigh more heavily on the Iranian government, which had released $ 50 billion in oil revenue last year; oil and petroleum products account for about 70% of the country's exports by value.

"For Iran, this shows that the leverage they have had through oil has not only decreased, but may never come back," said Amy Myers Jaffe, a comrade specializing in oil. energy at the Council on Foreign Relations. "People do not care if they are going to lose business in Iran. People do not feel desperate for supply. "

The sanctions are so heavy that even companies from countries opposed to Trump's approach are pulling out of Iran.

South Korea, Iran's third-largest oil market last year, halted its purchases in August after buying 194,000 barrels a day in July. Shipments to France and Japan, two other major markets, are also down.

OMV, the Austrian oil company, has recently abandoned an agreement with the National Iranian Oil Company to evaluate oil deposits. Hellenic Petroleum of Greece, Spain Repsol and Italy Eni are reducing their oil purchases.

The Democratic Advocacy Foundation, a conservative think tank in Washington, found that 71 foreign companies planned to withdraw from Iran, 19 to stay and 142 undecided or to decide in early September.