Oil prices may hit $100 as US sanctions on Iran loom

Iran will in November come under the burden United States of America’s sanctions on its financial, energy and automotive industries; this could push oil prices up.

Specifically, U.S. sanctions on Iran’s energy industry, when they come into effect could potentially drive oil prices above $100 per barrel, according to an industry expert.

“If U.S. sanctions end up cutting off Iranian oil supply completely, oil prices will likely hit $100 per barrel”, Fereidun Fesharaki, founder and chairman of consultancy FACTS Global Energy told CNBC. “What’s currently holding back oil prices from moving higher is the on-going trade friction between the U.S. and China.”

U.S. President Donald Trump’s decision to withdraw from an international agreement to curb Iran’s nuclear programme has resulted in a round of sanctions being re-imposed on the country’s financial, automotive, aviation and metals sectors. The U.S. State Department has set Nov. 4 as a deadline for Iranian oil buyers to completely cut their purchases to avoid American sanctions.

“If there was not that set of sanctions, I think prices would go to $70 or even a little bit lower. But now the sanctions threat is real and less than two months in front of us, that will transform the market into much higher prices,” Fereidun Fesharaki, founder and chairman of consultancy FACTS Global Energy, told CNBC’s Akiko Fujita at the CLSA Investors’ Forum in Hong Kong.

Iran is currently one of the largest oil exporters in the world. Cutting off Iranian supplies entirely would push oil prices above $100 per barrel because other major producers could not easily fill the void.

The timing for oil prices to hit $100 per barrel, a level not seen since 2014, depends on how quickly the U.S. and China resolve their differences on the trade front, Fesharaki noted.

On-going friction between the two largest economies in the world has affected sentiment. If that leads to a slowdown in global economic activity, the oil and gas industry will be dampened.