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Editorial comment

The Trump administration continues to move ahead with its goal of shuttering the Iranian energy industry and keeping roughly 2 million bpd of exports from reaching customers. The policy is part of a campaign pledge by President Trump to withdraw from the Iran nuclear deal (“one of the worst and most one-sided transactions the United States has ever entered into”), and reinstate sanctions on Iranian oil output.

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The eventual impact of these sanctions is uncertain. A key difference between this round and the last being that the US will be acting alone, without the support of the EU. The previous round of combined US/EU sanctions saw roughly half of Iran’s 2.4 million bpd of exports removed from the market. In contrast, analysts initially predicted that the Trump administration’s sanctions would be considerably less effective.

However, the administration has taken a firm line on the issue with State Department officials highlighting that they do not intend to offer any waivers to companies or countries. This appears to be having an effect on the likelihood of compliance – Edward Morse, head of global commodities research at Citigroup, said that the sanctions “will be a pressure point on prices. What we’re seeing is more and more buyers of Iranian crude that are stopping buying, and this is going to accelerate.”1

There are already the predictable rumours that new sanctions could send oil prices soaring to over US$100/bbl. Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch, was quoted as saying, “We could risk adding 20 - 25% to the price of oil if some of the messages coming from the State Department are on point […] If the administration enforces compliance to zero imports from Iran we will likely have a very large spike in prices.”2

Another factor supporting oil prices is Venezuela’s almost complete economic collapse. The country had been required to cut 95 000 bpd as part of the agreed OPEC cuts, but economic turmoil under President Nicolás Maduro’s tumultuous leadership has seen this figure rise to almost 675 000 bpd.3

Indeed, prices appear to be so well supported that even OPEC’s June decision to begin reducing compliance with production cuts had seemingly little impact. As of May this year, OPEC countries had cut production by 147% of the agreed amount – with prices hovering around the mid-US$70s the group is now looking to reign in surplus cuts and return to 100% compliance.

It’s on the back of these higher prices that the upstream industry continues its gradual recovery. The journey isn’t over yet, but the omens look good for now.


1. ‘US will be tough on Iran sanctions, and that could sting consumers’ –
2. ‘US hard line on Iran raises risks of oil price spike’ –
3. ‘As OPEC Opens Oil Taps, Allies Already Pumping More’ –

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