By Amir Taghati
The U.S. administration has been warning Iran that it will no longer be accepting its belligerence. The United states announced that it was pulling out of the 2015 Iran nuclear deal and the State Department has advised foreign countries that they must reduce their oil imports from Iran to zero by November 4th this year.
Following an OPEC meeting, the members (apparently under pressure from the United States, the United Arab Emirates and Saudi Arabia) have agreed to increase their oil production in a matter of weeks.
If the oil cut correlates with market fundamentals and seasonal demand, there will not be much of a rise in price. However, if the Trump administration continues to call for a reduction to zero, there will be a significant hike in prices.
Iran’s oil production can be covered by Saudi Arabia and Russia, but there is already upheaval in the market because of Libya and Venezuela making the spare capacity more vulnerable. This could severely effect prices, especially in the case of an escalation in the existing regional tension.
There is no doubt that oil prices will be affected but Russia, Saudi Arabia, the United Arab Emirates and other OPEC members will try to absorb the price shock. Each of the countries have the potential of raising their oil production to as much as 2.5 million barrels per day. As long as there is no immediate crisis, this should cover the deficit created by Iran.
The Iranian regime has hit back against the United States by threatening to block access to the Strait of Hormuz. It is Iran’s warning that the oil market should not use its maximum spare capacity to cover for Iran and it is making a point that if there is no spare capacity and Iran cuts access, there really will be a disaster.
Furthermore, top officials in the Iranian regime, including President Hassan Rouhani, have said that if the country’s oil is banned, not a “single drop” of oil will pass through the Strait of Hormuz.
The United States is not taking its current action to increase tensions in the region. The Trump administration has explained time and time again that it is taking the action it is taking to put a huge amount of economic pressure on the country. And this is all because of Iran’s belligerence.
President Trump has been left with the mess of the previous administration. Former US President Barack Obama refused to tackle the Iran threat head on. His administration pursued policies of appeasement that can only be described as a failure.
When he took office, Trump made it very clear that the days of appeasement are over and he has taken very decisive action to pressure Iran on its belligerence including its ballistic missile program and its spread of chaos across the Middle East.
The Iranian regime only has itself to blame for the problems that it is facing. It is under pressure from all angles and none of it is the fault of another party. The international pressure is a reaction to the threat Iran poses and the domestic pressure is a result of years and years of oppression.