Oil Prices Rise Because of Iran Sanctions but Can Be Managed

By Amir Taghati

Oil prices hit a six-month high on Tuesday after the US State Department confirmed that it would be ending sanctions waivers on countries importing Iranian oil.

US secretary of state Mike Pompeo said: “We’re going to zero. We will continue to enforce sanctions and monitor compliance. Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits.”

The waivers, granted to Iran’s eight biggest crude importers - China, India, Japan, Turkey, Taiwan, Greece, Italy, and South Korea – will expire on May 2.

This means a projected loss of 700,000 to 800,000 barrels of oil a day, according to global investment bank RBC Capital Markets, with oil supplies tightening as seasonal demand picks up in the Northern Hemisphere and other markets, like Venezuela and Libya, cut off because of domestic unrest.

The sanction snapped back into place after Donald Trump pulled the US out of the 2015 nuclear deal last year, but to avoid a price spike, waivers were granted.

Some experts predict that oil could rise to $80 per barrel now, but do note that the Trump administration could release oil from the US Strategic Petroleum Reserve to keep prices down.

Also, Saudi Arabia and the United Arab Emirates have vowed to increase production, although it is unlikely they can do so before the June meeting of the 14 members of the Organization of the Petroleum Exporting Countries (OPEC).

However, some countries due to have their waivers removed, like China, have vowed to continue with their imports from Iran, but those countries would need to know that much of Iran’s oil industry is controlled by the Revolutionary Guards Corps (IRGC), which was recently designated a terror group by the US. Continuing to import oil from Iran would not just be breaking US sanctions but providing material support to a terrorist group.

Iran has, in response to the US withdrawal of waivers, threatened to close the Strait of Hormuz, a strategically important shipping lane that is where most oil is transported through.

Of course, it is unlikely that Iran would actually do that. For one thing, they’ve made the threat many times before and have never carried it out. For another, Iran does not have the military might of the US, Saudi Arabia, and the UAE, who would fight to reopen the Strait and win.

The US withdrew from the nuclear deal saying that Iran failed to act like “a normal country”.