Brent crude and West Texas Intermediate both started the day today with only moderate gains despite the return of U.S. sanctions against Iran that will take effect at 12:01 a.m. Eastern Time today.
At the time of writing, Brent crude was trading at US$73.81 a barrel, with WTI at US$69.05, both up by less than a percentage point from yesterday’s close. But this could change later in the day as the flow of forecasts of reduced supply intensifies.
French Societe Generale has already estimated that the sanctions will remove 1 million bpd of Iranian oil from global markets, and yesterday a Goldman Sachs analyst told Bloomberg that the bank expected a “very, very tight oil market”.
Monday saw the return of sanctions against Iran’s metals, aerospace, and automaking industries. President Hassah Rouhani said President Trump’s recent suggestion the two could meet was only for show, CNBC reported. Indeed, any talks are unlikely since Washington has made it clear it will take nothing short of a regime change to remove the sanctions.
The alternative—Iran’s government agreeing to all U.S. demands such as putting an end to its participation in regional affairs, support for the Yemen Houthis, Hamas, and Hezbollah, and “meddling” in Syria—remains within the realm of fantasy. Related: Warship Or Oil Tanker – What Did The Houthis Hit?
Iranian oil importers from China to Europe are not too happy with the U.S. course of action, but Washington has once again reiterated its intention to see Iranian oil exports squeezed out completely by November 4. A government official this week repeated this goal, adding that the case-by-case treatment of countries was still on the table, but that “but our goal is to reduce the amount of revenue and hard currency going into Iran.”
By the looks of it, oil prices are set for a rise in the coming months as the effect of the sanctions begins to be felt, which is not particularly good news for the administration: midterm elections are coming in November and prices at the pump tend to have an impact on voting decisions. Yet for now it seems the crackdown on Iran is higher on Washington’s priority list than keeping gas prices lower for longer.
By Irina Slav for Oilprice.com
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