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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Saudi Arabia Ready To Start Pumping More Oil

Saudi Arabia is ready to increase its oil production in response to the expected decline in Iranian crude oil for international markets following President Trump’s withdrawal from the Iran nuclear deal. That’s what an official from the Saudi energy ministry told local state news agency SPA as quoted by Reuters.

Saudi Arabia supported Trump’s decision on the nuclear deal, unlike the United States’ allies in Western Europe: the heads of France, the UK, and Germany stated they are committed to upholding the Iran nuclear deal.

Russia and China—also signatories to the deal—have opposed Trump’s decision and are unlikely to make any changes to their economic relations with Iran following the U.S. withdrawal. While Russia is not a consumer of Iranian oil, China and India are—and they are unlikely to stop taking in Iranian crude despite the sanctions.

“Following the U.S. decision to withdraw from the nuclear agreement with Iran, Saudi Arabia is committed to supporting the stability of oil markets for the benefit of producers and consumers and the sustainability of the global economic growth,” the Saudi official said.

Analysts estimate that, depending on how many countries decide to stop importing Iranian crude to avoid angering Trump, the availability of Iranian crude could fall by anywhere from 300,000 bpd and 1 million bpd. The last time the U.S. imposed sanctions on Tehran, its crude oil exports shrank by a million barrels per day.

Japan and South Korea are the most likely to shun Iranian crude to stay on President Trump’s good side. As Ehsan Khoman, head of MENA research at Mitsubishi UFJ put it, “certain U.S. allies, including Japan and South Korea, may comply with the proposed U.S. reimposition of Iranian sanctions on the concern of losing the U.S. security umbrella vis-à-vis North Korea.”

Whatever sanctions the U.S. decides to impose on Iran, these will take time to effect oil prices. If Saudi Arabia begins expanding its oil production now, this will likely have a weakening effect on prices.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on May 09 2018 said:
    The Saudi official who was quoted by Reuters as saying Saudi Arabia is ready to increase its oil production in response to the expected decline in Iranian crude oil for international markets following President Trump’s withdrawal from the Iran nuclear deal, must have jumped the gun. It is a hypothetical statement verging on wishful thinking.

    There will be no reduction in Iran’s oil production and exports following a re-introduction of US sanctions. And contrary to analysts’ estimates, Iran will not lose a single barrel of oil exports. More than 75% of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25% go mostly to the European Union (EU). China, India and other Asia-Pacific region countries are not going to comply by US sanctions and reduce their imports of Iranian crude.

    While Japan and South Korea might comply with US sanctions and shun Iranian crude, this will be more than offset by China, India and other Asia-Pacific countries as well as the European Union (EU) increasing their imports of Iranian crude.

    The pre-Iran nuclear deal’s sanctions worked against Iran’s oil exports because of a combination of the EU’s sanctions on global insurance companies insuring Iranian oil cargoes and US sanctions on banking making it difficult for Iran to receive payments for its oil imports in petrodollar.

    The EU is not going to walk away from the Iran nuclear deal and therefore it will not be imposing any sanctions on Iran thus further weakening US sanctions and Iran will be using the petro-yuan and the euro for its oil sales thus bypassing the petrodollar altogether and nullifying the impact of the sanctions.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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