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IEA: U.S. Sanctions On Iran Could Create Major Challenge For Oil Supply

The current easing of the short-term concerns about oil supply could only be temporary, because the return of the U.S. sanctions on Iran-possibly coupled with production problems elsewhere-could make maintaining global supply "very challenging," the International Energy Agency (IEA) said in its Oil Market Report on Friday.

 

"The recent cooling down of the market, with short term supply tensions easing, currently lower prices, and lower demand growth might not last," said the IEA, noting that at the time the next monthly OMR is out in mid-September, we will be just six weeks away from the return of the U.S. sanctions on Iran's oil exports.

 

The U.S. Administration is looking to have Iranian oil exports down to 'zero' and is trying to persuade as many of Tehran's oil customers as possible to cut off their supplies from Iran.

 

While analysts expect that Europe could be convinced, China has already refused to acknowledge the U.S. sanctions on Iran and has said that it would not stop buying Iranian crude oil.

 

"As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion. Thus, the market outlook could be far less calm at that point than it is today," the IEA said.

Related: Canadian Oil Crisis Continues As Prices Plunge

The Paris-based agency lifted its 2019 oil demand growth forecast slightly up for next year, by 110,000 bpd to 1.5 million bpd, "but there are risks to the forecast from escalating trade disputes and rising prices if supply is constrained."

"The risks to stable supply that will grow later this year could cause higher prices and thus impact demand growth. Another factor to consider is that trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand," the IEA said.

By Tsvetana Paraskova for Oilprice.com

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Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More