The main objective sought by the Trump administration is to drive
down to nil Iran's oil exports in November in a bid to impose its own policies.
Iran's oil sector has already experienced embargo. But the
difference is that in 2012 Iran's oil buyers enjoyed sanctions waiver after
cutting their oil purchase from Iran by 20% over a six-month period. This time,
the Trump administration eyes a full halt to Iran's oil exports.
Such unlawful and unilateral move by the US administration will lead
to the failure of the policy of eliminating Iran from global oil market.
Although the US government has embarked on a diplomatic charm
offensive to convince buyers of Iran's oil to stop purchasing from Tehran in a
bid to ratchet up unprecedented pressure on the Islamic Republic, global market
rules do not follow Washington's decision. To that effect, the US
administration's policy of imposing sanctions on Iran's oil will face serious
challenges for a variety of reasons:
1. Oil Price Hike: Any decline in or halt to Iran's oil exports would
definitely impact global oil supply, which would in return introduce a shock to
markets and drive up energy prices. In other words, any decline in or halt to
Iran's oil exports would pressure oil markets to unprecedented levels since the
1973-1974 and 1979-1980 oil crises. Oil prices will be on the receiving end of
any such pressure on the market, which would definitely face strong opposition
from big consumers like China and European nations.
2. No Suitable Alternative: Iran is currently exporting about 2.5 mb/d of oil. The
US has announced it will do its utmost to minimize any disturbance in oil
markets through relying on Saudi Arabia and some other Arab oil producers;
however, the reality is that no country, even Saudi Arabia, would be able to
offset the market prospective shortage in the short term in case Iran's oil is
frozen out. First and foremost there are doubts about Saudi Arabia's alleged
spare capacity of 2 mb/d. Second, even if there is such capacity the Saudis
will have to win over fellow OPEC members for any increase in output. Without a
consensus, it would be impossible for the Saudi government to lift its output
to such extent. Meantime, oil markets are hit by oil shortage due to war in
Libya and domestic unrest in Venezuela, not to mention the drop in Angolan and
Nigerian oil production. Therefore, a halt to Iran's oil exports would create a
void which may not be filled easily. Even if such void is filled with the turn
of time, oil prices will be struck with shock in the short and mid-term.
3. Consumers Independence: After the US unveiled its plot against Iran's oil, many
countries including India, China, Japan and South Korea disagreed as they are
among traditional buyers of Iran's oil. Under the previous round of sanctions, these
countries showed their determination to keep buying Iran's oil under any
circumstances. What strengthens the position of the traditional buyers of
Iran's oil now is that Europe would not follow US sanctions. If the European
Union's proposed package for Iran covers oil sale, Iran will continue to sell
oil to Asia and Europe.
4. Producers' Opposition: In addition to consumers' concerns about any change in
Iran's oil supply, some producers remain opposed to the US decision to impose
sanctions on Iran's crude oil. Russia's Permanent Representative to the United
Nations (Vienna), Ambassador Extraordinary and Plenipotentiary, Mikhail
Ivanovich Ulyanov, reaffirmed his country's opposition to the imposition of
unilateral sanctions on Iran, calling for Iran's sustained oil supply on
markets. He made it clear that Iran's oil would stabilize global market.
The US initially claimed that it had no intention of granting any
waiver to buyers of Iran's oil, saying it was necessary for serving national
interests. But as time passed and consumers resisted US pressure, Washington
had to rethink and announce that it would consider sanctions waivers for some
countries. The US is expected to grant exemption to India, Japan, South Korea
and China to be able to keep buying oil from Iran.
Should the US refuse to grant such exemptions, it will face
opposition in its anti-Iran policy. It has become common knowledge that the
US's unilateral actions against Iran have failed to win any consensus all
across the globe. Even Washington's European allies disagree with these
sanctions. Furthermore, buyers of Iran's oil will bow to US pressure to stop importing
Iran's oil only if they receive guarantees for their energy supply, which is
Furthermore, any oil price hike would significantly drive up energy
commodity prices, including gasoline prices, in the US, which would directly
impact people's everyday life. That would pose a threat to Republicans' chance
of victory in the midterm elections scheduled for November 6 this year in the
US. That represents a big challenge for President Trump who has sought to prove
himself as a successful head of state. Should he stop targeting Iran's oil, his
foreign policy will face challenges, but if he exerts pressure on Iran his
party will be defeated in the mid-term elections.
While continuing to apparently impose tough sanctions on Iran's oil
sector, the Trump administration is unlikely to be able to force buyers of Iran
oil to cut their imports from Iran.
Courtesy of Iran Petroleum