Iran Sanctions: A Threat to Global Oil Price Stability
Donald Trump’s announcement that the US intends to withdraw from the Iran nuclear deal has incited an atmosphere of uncertainty around the future of oil prices around the world. The announcement on the 8th of May declared the United States’ intent to reinstate tough and far-reaching sanctions by November of this year. However, while the sanctions may be less impactful than initially anticipated, their potential significance is as of yet uncertain.
“It’s crazy and astonishing to see instruction coming from Washington to Saudi to act and replace a shortfall of Iran’s export due to their Illegal sanction on Iran and Venezuela”
Hossein Kazempour Ardabili
Under the deal, sanctions against Iran were lifted in return for the Islamic Republic’s cooperation in limiting the scope of its nuclear activities. The sanctions, which saw the Iranian currency lose up to 80 percent of its value, were lifted in January 2016, amid predictions that the price of crude petroleum could be reduced by up to ten percent around the globe. This was anticipated to save the US economy tens of billions of dollars each year. However, in a widely criticised move, the US has announced its withdrawal from the deal as the Trump administration has increasingly taken the side of Israel in its foreign policy.
In reversing one of President Obama’s most highly praised foreign policy achievements, the Trump administration risks increasing oil prices significantly. While the unilateral withdrawal of the US has not been adhered to by EU countries, the economic influence of the US may still see significant damage inflicted upon Iran. Thus, as sanctions against another founding OPEC member – Venezuela – came into effect this year, Iran’s representative to OPEC, Hossein Kazempour Ardabili, warned that the price of oil could jump to USD 140 per barrel.
As such, in an effort to avert catastrophe, just a day before the announcement, a senior official within the Trump administration asked for ally Saudi Arabia’s cooperation in maintaining the stability of oil prices. However, despite a long-standing rivalry between Iran and oil-rich Saudi Arabia, Kazempour stated “It’s crazy and astonishing to see instruction coming from Washington to Saudi to act and replace a shortfall of Iran’s export due to their Illegal sanction on Iran and Venezuela.”
Nevertheless, the announcement has already seen the exit of several European companies from Iran, the most prominent of which is French oil giant Total SA, which was the only major western oil company to form an agreement with Iran during the two years in which sanctions were lifted. However, the withdrawal is not a total loss for Iran as Total SA has agreed to hand its stake in the development to the China National Petroleum Company.
The announcement has however, precipitated the winding down of purchases by European oil refiners as insurance, shipping and financial companies end ties with the Islamic Republic of Iran. Furthermore, Indian oil and gas company Reliance Industries announced that it would no longer import Iranian oil while GE has announced plans to stop selling oil and gas equipment to Iran. As such, the consequences of the US sanctions on Iran’s economic development may be particularly far-reaching.
While China and the EU may avert much of the damage, Iran will likely still struggle to gain foreign investment which will be vital for the development of the country’s oil economy. Thus, while global demand for oil has increased around the world, much uncertainty surrounds Iran’s future as an exporter.
Writer: Louis Goss