Who reaps from re-imposition of sanctions on Iran?

The market fundamentals are gathering and it is difficult to situate the impact of re-imposing sanctions on Iran will have on global oil prices. Already, oil prices rose, extending gains on growing evidence of disruptions to crude supply from Iran and Venezuela and after a fall in US crude inventories. Benchmark Brent crude oil was up 50 cents a barrel at $77.64. US light crude was 40 cents higher at $69.91.

With the November 4 deadline looming, Iran’s oil exports are tumbling again as the country’s key buyers in Asia take fewer cargoes in the weeks before US sanctions take full effect. Iranian crude exports dropped to a little more than 2 million barrels per day (bpd) in August. This is the lowest since March 2016 against a peak of 3.1 million bpd in April, as importers bow to American pressure to cut orders.

In May, Trump pulled the United States out of the Iran nuclear agreement between five other world powers and Tehran. The administration is urging countries to cut purchases of Iranian oil from the Islamic Republic to zero or face possible sanctions after November. However, the United States in certain cases will consider waivers for countries that need more time to wind down imports of oil from Iran while re-imposing sanctions against Tehran, US Treasury Secretary Steven Mnuchin has said.

But Iran is poised to fight back, threatening to close the Strait of Hormuz, a vital conduit for Middle East shipments. According to military sources, Iran plans to halt Middle East oil exports if it is not allowed to ship its crude through the Strait of Hormuz, according to a top military official.

If the Islamic Republic cannot use the Strait for its oil exports, “there will be no security for others either and no other crude will be exported from this region,” Armed Forces Chief of Staff Mohammad Bagheri said.

The Strait of Hormuz is at the mouth of the Persian Gulf, the world’s biggest concentration of tankers that carry about 30 percent of all seaborne-traded crude oil and other liquids during the year.

“A sudden drop in Iranian crude shipments from the market will cause big shortages and a negative impact on oil prices,” Alaa al-Yasiri, head, Iraq’s state-oil marketer SOMO, said, referring to a possible increase in prices. “It’s very difficult to predict what is going to happen in next OPEC meeting but producers must find ways to make up for Iranian crude that the market will lose.”

FRANK UZUEGBUNAM