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Who will benefit from US sanctions against Iran

UNITED STATES, WASHINGTON (OBSERVATORY) — US President Donald Trump has decided to abolish the system of exemptions from the sanctions regime for consumers of Iranian oil. This means that India, China, Turkey, Japan and South Korea will have to look for new sources of replenishment of their energy balance, and 1-2 million barrels of “black gold” per day will be removed from the world market.

Almost guaranteed, this means an increase in oil prices from current already high values ​​- unless, of course, OPEC intervenes. What will result in Trump’s decision for the world community.

You can’t go there

Sanctions were imposed in November last year after the US administration failed to persuade Iran to cooperate on its nuclear and missile programs. The White House decided to increase economic pressure on Tehran, and the goal was proclaimed bringing Iranian oil exports (the main product exported from the country) to zero.

After the lifting of previous sanctions under Barack Obama, Iran quickly increased production. Toward the end of last year, oil exports totaled 2.5 million barrels per day. Demand for Iranian hydrocarbon products was especially high in Asian markets, so many countries, including US allies, were in an unpleasant position – they had nothing to quickly replace supplies from Iran. Washington then created an exemption system that allowed Iranian oil consumers to gain time to find new partners. This program includes eight countries, including India, China, Japan, South Korea, Turkey, Taiwan, Italy and Greece.

The last three soon stopped buying Iranian oil. But the rest hoped that the exceptions declared for a period of six months would actually be unlimited. For them, the abrupt actions of the White House were an unpleasant surprise. In particular, China (about half of its oil consumption is imported) believes that its trade relations with Iran are completely legitimate and does not want to suffer because of them. Turkey, in turn, lamented that such a decision threatened “regional stability.” India also fell into a difficult situation, which was also dependent on oil supplies from Venezuela, against which the United States also imposed sanctions.

Thus, several large economies , which, apparently, were not prepared to tighten American policy , were hit immediately . Now they have to find other suppliers. State Department head Mike Pompeo hastened to extinguish possible passions, saying that America had worked with major suppliers from the Persian Gulf – in particular, Saudi Arabia and the UAE. If these countries increase exports, then, according to the Americans, the problem will be solved.

Arab party

However, no details about the agreements between Washington and Riyadh yet. Officially, representatives of the kingdom repeat traditional formulas. According to Saudi Arabian Oil Minister Khalid al-Falih, the state will work with other producers in order to “ensure adequate supply to consumers and ensure that the global oil market does not lose balance.”

At the same time, other arguments sound non-public. According to The Financial Times, on the sidelines of the Saudis note that, although Riyadh is ready to make up for any shortcoming in the market (especially while the risks with Venezuela and Libya remain relevant), a decision will be made only after assessing all the consequences of lifting the exceptions for Iran.

The fact is that, as recently as last year, the Saudis were pretty badly burned, playing along with American foreign policy. Before the adoption of sanctions against Iran, Riyadh sharply increased production volumes. But the kingdom did not know that the largest customers of the Islamic republic would be exempted from bans. The result was a drop in oil prices by more than a quarter, lasting almost the entire winter and causing an unpleasant blow to producers. Which at the moment consider a comfortable price significantly higher than $ 50 per barrel.

Since then, the Saudis have steadily reduced production. In March, it fell by 440 thousand barrels per day below the mark established in OPEC + agreements. With the task of raising prices after the winter failure, this action has completely coped. As it turns out, it’s even too much: many OPEC members voluntarily lowered production, but others were forced to do so. Venezuela is still torn by a political and economic crisis, and the civil war in Libya is far from over.

Now, Iran’s factor has been added to this. Immediately after the White House announced the abolition of the system of exceptions, the Brent brand jumped up to the mark of $ 75 per barrel. In recent years, the price was only higher last fall, and it did not last long at these marks. Now expensive oil can hold up.

Will be rich

In fact, it all depends on two things. First, how carefully the sanctions regime will be respected. It is very likely that it will not be possible to reduce oil supplies from Iran to zero. Nevertheless, a reduction in exports to a million barrels per day is quite possible, that is, about a million barrels will disappear from the market. Secondly, to what extent the Saudis are ready to compensate for the lack of “black gold”.

Formally, they have all the necessary resources for that. Saudi Arabia still reigns in the oil market, with tremendous opportunities to regulate production and prices. More recently, it produced over 11 million barrels per day, so increasing production by 1–2 million barrels is not a problem for it. The only question is what price representatives of Riyadh will find comfortable at the moment.

On the one hand, the current figures for the Arab kingdom are beneficial. According to the results of the first quarter, the country’s budget recorded a surplus for the first time in four years. Obviously, if oil costs more than $ 70, the state does not need to get into a small pill to implement social and infrastructure programs.

On the other hand, there is always a risk that warmed up by speculators against the background of even a small deficit prices can get out of control and reach pre-crisis levels of $ 100 and higher. This, on the one hand, will expose the oil market to the threat of collapse in the style of 2014, on the other hand, it will help competitors in Riyadh, for whom a high oil price is a vital condition for the development of the hydrocarbon industry. All of this in Saudi Arabia would like to avoid.

Anyway, but at least until the next meeting of the OPEC + format in June, the trend for expensive oil (above $ 70 per barrel, which is serious by today’s standards) is likely to continue. For Russia, this is mostly good news. Although the state of the treasury has long been independent of specific prices due to the budget rule (cut-off price is $ 40 per barrel), the country’s oil and gas industry itself can receive a good impetus for development, which will partially mitigate the effect of sectoral sanctions.

At the moment, Russian companies are mining even more than what was established by the OPEC + agreement. Based on the current development of events, it is unlikely that anyone will blame Moscow for this. Rather, there will be a good opportunity to increase production without causing dissatisfaction with other oil producers.

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