Unilateral U.S. sanctions on Iran, which came into force this week, will hit the country hard, of that there can be no doubt. The sanctions affect trade in dollars, gold, steel and aluminium, and in November the restrictions will be extended to include Iran's oil trade.
But what are the possible impacts, however unlikely, of the sanctions on the global oil industry over the coming months?
1. Oil prices will rise but they might fall too
Right now, commentators are predicting big oil price rises. And of course this is bound to happen in the run up to November. But there is of course an opportunity here, and it's one which the OPEC countries will seize with both hands.
Even though production limits were gently raised in June, Russia, in particular, may well still use the U.S. sanctions to justify breaking the fragile deal that's holding them back. In reality, they probably don't need an excuse. The deal has always been fractious, though it's all credit to Saudi Arabia that they've kept Russia onside so far and built up a good relationship. But that doesn't mean that Russia isn't always thinking strategically, and thinking when to break free. The U.S. sanctions are a useful cover under which to go ahead exactly as planned.
If Russia cuts and runs, or persuades Saudi Arabia it's time to ditch the limits before November, it could start a production race the like of which we've not seen for many years. If that happens, what with all the talk of OPEC+, within the next month the oil industry could be looking at falling rather than rising prices.
But it's not only Russia – other countries may choose to ramp up production through investment too. The emergent oil producers are the ones to watch, such as Iraqi Kurdistan. These markets have yet to be fully developed; industry professionals like Ian Hannam and Tony Hayward have made a good start though. This could provide the market opportunity.
2. Production might be stretched to the very limits
It's no secret that as soon as Iran dips out of the main global markets when the sanctions bite in November, production will have to rise exponentially elsewhere to cover the deficit. After all, the last set of sanctions on oil removed around 50% of Iran's exports from the market – some 2.4 million barrels.
But Saudi Arabia is already covering the loses from Venezuela into the U.S., reportedly exporting 1 million barrels of crude a day in July, a 36% jump over the previous month. Yes, there is some spare capacity, but the loss of Iranian supplies could swamp this extra capacity overnight.
It's true that Venezuela's production has risen from the catastrophic lows of 1.34 million barrels per day in June, their lowest general output for nearly 70 years, but there is no reason to trust that the country has turned a long-term corner when it comes to production. Chances are they'll drop back down and what then?
Russia will want to step into the breach of course. And why not? Only this week, Rosneft financial figures revealed its second-quarter net profit tripled to $3.6 billion, thanks to OPEC's decision to increase limits. Combined with the threat of new sanctions by the U.S., the temptation to make hay with production must be almost overwhelming. Will Russian oil be enough to avert a potential crisis? Probably, but we'll only find out for sure if it happens.
3. The U.S. could seize power over the oil industry for ever
No one is suggesting that the U.S. sanctions on Iran are designed to ensure that America seizes control over global oil supplies for ever, but they certainly might have that effect. The Energy Information Administration director suggested a few months back that the U.S. would become the world's largest oil producer, overtaking Russia, next year. Iran is already saying that the sanctions are designed to ensure the U.S. crushes its oil industry.
Some countries won't bow to U.S. demands to cease buying Iranian oil, but many will have little choice if they want to continue trading in other goods and services with the U.S, and retain good relationships with the most powerful country on earth.
This means that by default, the U.S. is likely to get a very firm grip on the oil industry; and through it, they will gain an even tighter geopolitical grip. America has always been a force to be reckoned with but once they become the world's largest oil producer they start to dominate in an entirely new way. How they will use this new-found power under Donald Trump makes for many hours' heated debate. But what's certain is that they'll seize every opportunity to make it count on the world stage.
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