Iran's sanctions could tighten global oil significantly

The arrival of the proposed date for the US to re-impose sanctions on Iran came as little surprise, but the tone of President Donald Trump on the potential for future western business with the country was as dark as observers had feared. 19659002] "Anyone doing business with Iran will not be doing business with the US. I am asking for world peace, nothing less, "he thundered on Twitter the day after the US reintroduced sanctions on the country on 6 August, 90 days after walking away from the nuclear deal

This first tranche of sanctions includes measures against

"I think this effectively closes the door to trade with Iran for the time being, at least from the perspective of the Iranian government, and an embargo on the country's automotive sector. a western corporation, "said a source familiar with international business in Iran.

Those measures on their own would be sufficient to stymie western investment in the country and to make the purchase of goods from the country difficult, but there is still the second milestone to pass in early November. This second tranche of sanctions encompasses Iranian petroleum products, transactions by foreign institutions with Central Bank of Iran (CBI), and on the country's port, shipbuilding and energy sector operators.

Coming as global supply and demand for crude oil are closer according to the International Energy Agency (IEA), the impact could be substantial.

"The sudden disappearance of Iranian crude from the global market could cause prices to spike, especially if it coincides with any other significant disruption or outage on the market.

" As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply could be very challenging and would come at the expense of maintaining an adequate spare capacity cushion, "the IEA said in its monthly oil market report last week



Saudi Arabia has been quietly bolstering its own crude production since Saudi Arabia has been working hard with Iran over crude production since sanctions were lifted due to the former's desire to tighten production and the latter's focus on ramping up production and rebuilding its economy of late.

The country has increased average crude output from 9.95m bbl / day in the first quarter of 2018 to around 10.44m bbl / day in June, slightly above the average for 2016 and significantly outpacing 2017 output levels.

OPEC has declared itself ready to inject more oil into the system, and increased production by Saudi Arabia and Russia has gone a long way towards moderating pricing over the last month, with the cost of Brent crude falling from $ 79 / bbl to $ 72 / bbl.

However, production declined on month in July, according to OPEC data on Monday, indicating that equilibrium the Kingdom is seeking will leave prices stable but firm. Nevertheless, the probable loss of Iranian petroleum sources will leave the market much more exposed to disruption, and the prospect of higher prices could also slow demand next year, according to the IEA.

Despite the intensification of hostilities between the US and Iran , the European Communist Parties to the Joint Comprehensive Plan of Action (JCPOA) are desperately seeking to support the deal.


"The remaining parties to the JCPOA have committed to work on, inter alia, the preservation and the maintenance of effective financial channels with Iran, and the continuation of Iran's export of oil and gas, "said the EU, German, French and UK foreign ministers in a joint statement last week

" On these, as on other topics , our work continues, including with third countries interested in supporting the JCPOA and maintaining economic relations with Iran. "

Although it seems unlikely that any large international corporations would be able to make up to Iran even under the protection of the EU, due to the US's 'primacy as a market', policy makers are holding out hope that smaller companies could be prevailed over to continue with plans to invest in the country

The The Commission has called the European Investment Bank (EIB) as a potential source of funding for projects in Iran, but the bank's management has been demurred by making such commitments until now

If all of the bank's governors, 28 EU representatives member states, agreed that the EIB would lend to projects in Iran, then the EIB would have to move forward with it, but it could stand to remove the US as a source of fundraising

"A key point to note is that there is a gap between the EU's political motivation to keep the JCPOA alive and the risk appetite of European companies, "said a source.

" Even if the EIB chooses to fund projects in Iran, unlikely … given the bank's risk appetite more generally, my vi "The source is added.


Deals continue to be pursued further east , but even in those cases the routes taken to lock down are circuitous and opaque.

The Indian government has purchased over 700,000 tonnes of fertilizers from Iran, but with a bill of lading in Dubai / United Arab Emirates (UAE), and

China has reportedly bought Iranian crude siphoned through its China-Myanmar pipeline system.

But it remains to be seen whether even deals of this nature will be feasible in the future, especially when the US-Iran petroleum embargo comes into force.

Whether EU funding and sanctioning measures are limited in preserving a degree of trade between the region and Iran, it is hard to

After spending most of the capital accrued in his political life to push through the nuclear deal, Rouhani now potentially stands as a lame-duck leader a year in his second four-year term of office, and has been called by former president Mahmoud Ahmadinejad to resign.

Hardliners, meanwhile, are gaining influence.

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