• 3 minutes Nucelar Deal Is Dead? Iran Distances Itself Further From ND, Alarming Russia And France
  • 5 minutes Don Jr. Tweets name Ukraine Whistleblower, Eric Ciaramella. Worked for CIA during Obama Administration, Hold over to Trump National Security Counsel under Gen McCallister, more . . . .
  • 9 minutes Shale pioneer Chesepeak will file bankruptcy soon. FINALLY ! The consolidation begins
  • 12 minutes China's Blueprint For Global Power
  • 1 hour Pioneer's Sheffield in Doghouse. Oil upset his bragging about Shale hurt prices. Now on campaign to lower expectations, prop up price.
  • 3 mins EU has already lost the Trump vs. EU Trade War
  • 17 hours Tesla Launches Faster Third Generation Supercharger
  • 28 mins China's Renewables Boom Hits the Wall
  • 17 mins ''Err ... but Trump ...?'' #wall
  • 6 hours Passerby doused with flammable liquid and set on fire by peaceful protesters
  • 7 hours Who writes this stuff? "Crude Prices Swing Between Gains, Losses"
  • 7 hours Crazy Stories From Round The World
  • 2 days Climate Change Consensus Shifts in Wind, But Gas Is Still the Right Move
  • 18 hours Haaretz article series _ Saudi Arabia: A Kingdom in Turmoil | Part 1 - Oil Empire
Alt Text

The World’s Most Vulnerable Oil

The modern geopolitical landscape is…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Trump’s Hardline On Iran Catches Markets Off-Guard

Oil prices spiked on Monday on news that the Trump administration has opted to take a hardline on Iran, letting sanctions waivers expire at the end of the month.

The Washington Post reported on Sunday that the State Department was set to announce a decision against extensions on waivers after the initial six-month period expires. Secretary of State Mike Pompeo announced the decision on Monday. As a result, the eight countries that the U.S. granted waivers to – China, India, South Korea, Japan, Taiwan, Italy, Greece and Turkey – will have to completely halt their purchases of oil from Iran. If not, they could be hit by U.S. sanctions.

Whether or not to extend waivers had been a divisive issue within the Trump administration, with hawks like National Security Advisor John Bolton pushing for “maximum pressure,” while Secretary of State Mike Pompeo – who has a long track record hawkishness on Iran – was more sympathetic to a nuanced approach. The more aggressive wing appears to have won out.

“The policy of zero Iranian imports originated with Secretary Pompeo,” a senior State Department official told the Washington Post, hoping to downplay the differences between high-level officials. “He has executed this policy in tight coordination with the president every step of the way. Because the conditions to not grant any more SREs have now been met, we can now announce zero imports.”

Oil prices immediately shot up on the news, spiking by more than 2 percent. Trump administration officials dismissed concerns about the impact on the oil market, arguing that global supply exceeds demand and also that the U.S. had convinced Saudi Arabia and the UAE to ramp up production to offset the outages, according to the Washington Post.

But the decision to let the sanctions expire caught the oil market off guard. “This does bring a lot more uncertainty in terms of global supplies,” Olivier Jakob, analyst at Petromatrix, told Reuters. “It is a bullish surprise for the market.” Related: Why Russia Fails To Speed Up Production Cuts

“Last summer didn’t go above $3 a gallon as a national average, but this summer, if we don’t have Iranian oil we probably do go over $3,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, told the New York Times.

Three of the eight countries – Italy, Greece and Taiwan – have already zeroed out their purchases of Iranian oil. Turkey, South Korea and Japan will have to scramble to find alternatives, potentially at higher costs, but finding replacements is achievable. Still, Bloomberg reports that South Korea would be hit hard because it needs ultra-light condensate used in petrochemicals, although that is found in abundant supply in the U.S.

But the big question is how China and India will react. “China’s cooperation with Iran is open, transparent, reasonable and legitimate, and should be respected,” Foreign Ministry spokesman Geng Shuang said in response to news that the U.S. planned on letting waivers expire. China was allowed to import 360,000 bpd under U.S. waivers, while India was permitted 300,000 bpd.

The loss of Iranian oil will be hard to replace, but Washington is confident that its Gulf allies will cover the gap. Unlike last year, however, it is not clear that Saudi Arabia will preemptively increase production in order to compensate for hypothetical supply losses from Iran. Riyadh is not interested in another oil price crash.

Instead, while Saudi Arabia may have told American officials that it would increase production, it may only do so after the fact, so that it can calibrate its response. Reuters reported that sources familiar with Saudi thinking said that Saudi Arabia would only respond after it assessed the impact on the oil market from the expiration of sanctions. In other words, they may let the oil market continue to tighten before they add supply. Related: Did This Gas Major Just Ensure Its Survival?

Topping it off, there is still a great deal of risk of a supply outage in Libya. President Donald Trump reportedly spoke with Khalifa Haftar in recent days, the head of the Libyan National Army, which could rattle oil markets further since it lends some sort of legitimacy to the LNA. The White House said that the two spoke of a “shared vision” for Libya, which raised eyebrows because official U.S. policy has been to support the Government of National Accord (GNA) in Tripoli and to call for a cessation of hostilities. The GNA said the Trump-Haftar conversation could push up oil prices. “Oil prices…usually rise if wars or unrest occur in oil-exporting countries,” Fayez al-Sarraj, prime minister of the U.N.-backed GNA, told the Wall Street Journal in an email.

However, even as the oil market faces higher prices, the longevity of the OPEC+ deal immediately comes into question. Russia has already sent signals that it is not on board with an “uncontrolled” price increase, as Vladimir Putin put it recently. If prices shoot up over the next few weeks, there will be immense pressure working against an OPEC+ extension when the group meets in Vienna in June. News that Saudi Arabia and the UAE have told Washington that they would increase production dramatically reduces the odds of an extension.

That, on its face, would suggest that the impact on oil prices from the expiration of Iran sanctions waivers could be limited. Saudi Arabia could replace lost Iranian supply barrel-for-barrel. However, while Riyadh could ramp up production, it would also need to do so at a cost to its spare capacity. Buyers won’t have trouble finding enough supply, but the loss of a big chunk of spare capacity has historically been a driver of higher prices and higher volatility.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • Bob Jones on April 22 2019 said:
    The oil & support industries are driving up the price of oil again when there is plenty of oil sloshing around the world & millions of barrels of idle capacity sitting there. There is no reason for oil to be above $30 a barrel or less. However, this is great! Once again they are lighting the American oil industry on fire, & giving renewables more & more time to lower costs & grab market share. The higher they manipulate oil prices the faster they insure their own doom.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play