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Shift In U.S. Policy On Iran Oil Could Swing Global Markets

  • Oil supply so far hasn't been disrupted by conflict in Israel.
  • Whereas oil markets do not appear to have been affected much by Israel’s crisis, the precautionary closure of Israel’s Tamar gas field by Chevron Inc. has sent Europe’s gas prices rocketing.
US Iran flags

Back in August, we reported that Iran oil exports had hit record highs thanks in large part to the Biden administration opting to look the other way as Tehran boosts production ostensibly in a bid to keep markets well supplied and oil prices low. The price response to the escalation in the Middle East tensions has so far been modest; however, the Israel-Gaza war is likely to cause a significant shift in U.S. policy on Iran due to its open support and backing for Hamas.

Commodity analysts at Standard Chartered have noted that the decision towards the end of the first Obama administration to link trade policy to imports of Iranian oil by key consuming countries effectively cut  Iran’s output by over 1 million barrels per day (mb/d). 

Constraints were later eased after the signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015. However, constraints were tightened again after the U.S. withdrew from the JCPOA during the Trump administration, with output falling below 2mb/d in 2020 when waivers given to consuming countries were withdrawn. Iran’s oil output and exports have increased sharply under the Biden administration, with production hitting  3mb/d, including 500,000 b/d in the current year, while exports sit just under 2mb/d.

Earlier, reports emerged that the U.S. and Iran were making progress after resuming talks on a nuclear deal, a move that could ease sanctions on Iran's oil exports. Israel's Haaretz newspaper reported that the talks are moving forward more rapidly than expected, with the possibility of a deal being struck in a matter of weeks.  Related: Sheffield: Oil Prices Will Spike If Iran Jumps Into Hamas-Israel Conflict

Deal terms are likely to include Iran ceasing its 60% and higher uranium enrichment activities in return for permission to export as much as 1M bbl/day of oil. A successful nuclear deal could change the oil markets, with former Iran oil minister Bijan Namdar Zanganeh saying that his biggest dream has always been to increase Iran’s oil output to as much as six million barrels per day.

But recent allegations that Iran helped Hamas plan the Israel attack is very likely to seriously strain relations between Washington and Tehran. StanChart has opined that The U.S. has three broad policy options in relation to Iran’s oil output: (1) the status quo, with output at 3mb/d or higher, (2) the pre-2023 plateau of close to 2.5mb/d, or (3) near-zero exports with output below 2mb/d as reached at the end of the Trump administration. 

The analysts note that option #1 was the most expedient policy for the U.S. in terms of both market influence and geopolitics just a week ago. However, the latest developments in the Middle East have brought options #2 and #3 into focus as potential policy targets.

Source: Standard Chartered Research

Europe Gas Prices Soar After Israel Shuts Gas Field

Whereas oil markets do not appear to have been affected much by Israel’s crisis, the precautionary closure of Israel’s Tamar gas field by Chevron Inc. (NYSE:CVX) has sent Europe’s gas prices rocketing despite the continent being flush with the commodity. StanChart estimates that the shutdown has cut Israel’s domestic output by about 28 million cubic meters per day (mcm/d) and sent Europe’s natural gas prices 15% higher. 

StanChart notes that whereas exports from Israel to Egypt usually come from the Leviathan field, the Tamar outage is likely to have knock-on effects, with early indications suggesting that exports have been reduced by about 5 mcm/d from the usual 23 mcm/d. Theoretically, the reduction of exports to Egypt could have implications for European markets as it reduces the

likelihood of Egypt loading LNG cargoes. StanChart has observed that those fears are somewhat overblown since the number of cargoes at risk is small, if not zero. Indeed, Egypt’s domestic demand has been so strong that no cargoes were exported in September.

In their defense, Europe’s gas markets are facing other supply risks beyond Tamar including renewed concerns over strike action in some Australian LNG facilities, as well as an outage in a two-way interconnector pipeline between Estonia and Finland. The damage to the Balticconnector pipeline and an adjacent telecommunications cable is being treated as potential sabotage by the Finnish investigation. While the pipeline itself is of relatively minor significance within the EU supply system, market concerns are likely to be heightened about the potential sabotage of other vital pipelines.


Europe’s gas inventories have continued to rise even as concerns about potential supply losses have dominated. According to Gas Infrastructure Europe (GIE) data, inventories hit a new all-time high at 112.92 billion cubic meters (bcm) on 8 October, good for 97% of storage capacity. The y/y increase stands at 9.41 bcm and the build above the five-year average is 11.75 bcm. According to StanChart, it seems likely that the start of significant inventory draws will be delayed, and the EU is likely to finish the withdrawal season with very high inventories and potentially well above 70 bcm with early forecasts suggesting that the European winter will be extremely warm. In contrast, inventories finished the 2021-22 withdrawal season four weeks after the invasion of Ukraine at just 29 bcm and the 2017-18 withdrawal season ended with less than 20 bcm in inventory.

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on October 12 2023 said:
    The former Iranian Foreign Minister Mohammed Javad Zharif used to boast openly that Iran has perfected the art of evading US sanctions and it will be willing to let others on it for a price. The proof is that Iran has been exporting an estimated 1.5 million barrels a day (mbd) or 71% of its pre-sanction exports despite the harsh US sanctions.

    Therefore, no matter what policy shift the United States may make in the aftermath of the Hamas attack on Israel will neither affect Iran’s ability to export its oil nor will it affect the global oil market.

    However, the whole equation will change drastically if both Israel and the United States accused Iran with helping Hamas plan the attack. If Israel and the United States decide to punish Iran by attacking its oil infrastructure (refineries and production installations), then there could be a wider war in the Middle East and this will definitely affect the global oil market possibly sending Brent crude beyond $150 a barrel particularly if Iran manages to block the flow of oil through the Strait of Hurmoz.

    Let’s also be clear about one thing. We aren’t going to see a new Iran nuclear deal soon or ever unless it is on Iran’s own terms. The only deal acceptable to Iran is an immediate lifting of all sanctions against it with no new restrictions whatsoever on its nuclear and ballistic missile development programmes. Moreover, Iran will insist that the US drops the designation of the Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization. These demands are virtually impossible for the Biden administration or any other administration for that matter to swallow.

    With its success in evading US sanctions, Iran is in no hurry to reach a new deal and would rather focus its efforts on ejecting US military presence from Iraq, Syria and the entire Middle East. This is its ultimate objective of achieving a great geopolitical and strategic victory over the United States.

    The shut-down of Israeli Tamar gasfield is most probably a precautionary measure against a possible missile attack by Hamas or an unlikely one by Hizbullah of Lebanon. It is estimated that the shutdown has cut Israel’s domestic gas output by about 28 million cubic meters per day (mcm/d) and sent Europe’s natural gas prices 15% higher.

    This is bound to have a knock-on effect on Egypt’s LNG exports to the EU since the bulk of Israeli gas is exported to Egypt to be liquefied into LNG and then exported along with Egyptian LNG to Europe.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment

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