By Shahriar Kia
The U.S. significantly tightened its energy sanctions against the Iranian regime this week when it removed sanctions waivers for eight countries that had been allowed to continue buying Iranian oil following the reimposement of sanctions last year.
This is part of the Donald Trump administration’s push to reduce Iran regime’s oil exports to zero in order to cut off the Regime’s funding for terrorist groups, domestic repression, and its ballistic and nuclear weapons programs.
Many analysts were shocked by the sudden withdrawal of waivers, expecting that Trump would tighten the waivers every six months and gradually wind down purchases of Iranian crude and some fear that it could shock the oil market.
However, Trump is not worried and insists that the rest of the oil-producing nations in the world will be able to make up for the loss of Iranian crude, specifically citing Saudi Arabia. The Saudis have yet to officially confirm, but this will likely be resolved at the OPEC meeting in June. It’s not like oil-producing countries wouldn’t relish the chance to increase their market share.
Now oil prices did initially rise after the US announcement, but they didn’t jump that much and are expected to go down again soon. After all, the oil market is at present oversupplied. There are several other factors affecting the price of oil as well, including the crisis in Venezuela and the contaminated oil from the Russian pipeline, so it is unfair to pin the price rise solely on US sanctions.
Despite US sanctions, however, many fear that it is impossible to get Iran exports to actually fall to zero immediately because Iran will likely smuggle its oil out through neighbouring Iraq, which highlights the dangers of allowing the Regime to get so much influence over the region.
Another way that Iran could evade the sanctions is through selling their oil in non-dollar-denominated transactions, according to Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, who estimates that 800,000-900,000 of Iran’s 1.3 million barrels of oil per day could come off the market.
Another challenge comes from China and Turkey who have spoken out against the sanctions, with China publically vowing not to comply. However, this could all be bluster, so we will have to wait and see.
The reality is that even if these sanctions cause some short term pain in the case of higher oil prices, getting rid of the Iranian Regime is still worth it to protect global security.
