Trumps announcement of decertifying the Iran nuclear deal has sent the world's oil prices in a tizzy. Crude topped $70 a barrel last week for the first time in nearly four years.
Iran produced about 3.8 million barrels of oil per day in April. That's up from 2.9 million barrels per day in January 2016, when the nuclear deal took effect. Just how much of Iran's growth in oil production is at risk — and when it could decline — is uncertain. The US Treasury Department said on Tuesday that sanctions targeting Iran's oil trade and energy industry will come with a six-month lag. At least some of that oil will now be pulled from the market — at a time when oil prices are already rising because of production cuts by OPEC and Russia. And the political instability in Venezuela continues.
Saudi Arabia is the biggest gainer
According to WSJ, if US sanctions take Iranian oil off the market some may conclude that the objective of the OPEC deal has been achieved. Countries like Russia and Kazakhstan want to boost production and grab market share, while others like Saudi Arabia aim to keep the agreement in place and achieve $80 bbl oil. Saudi Arabia has said it will stand in to replace any oil lost from Iran.
Snapping sanctions back on Iran will have an immediate impact on less than 200,000 barrels per day of Iranian oil, according to analysts. Hours before Trump's announcement, federal government forecasters raised their estimate for 2018 oil prices by 10.5% to an average of $65.58 a barrel. The US Energy Information Administration lifted its 2019 domestic output forecast on Tuesday by nearly 4% to a record 11.9 million barrels per day. OPEC Kingpin Saudi Arabia indicated it was ready to act. In a statement late Tuesday, the Saudi energy ministry said was "committed to supporting the stability of oil markets."
Who will follow and who will Ignore the sanctions?
So a total of 31.4% of the total oil export from Iran goes to Europe. Some analysts say the impact of renewed US sanctions on the market will be minimal as they aren't supported by Europe's biggest economies, while others say as much as 700,000 bpd could be hit. OPEC will meet in June to decide the fate of the current output deal.
China and India are the largest importers of Iranian crude and condensates, taking around 600,000-b/d and 400,000-b/d, respectively. Most analysts believe that at least some nations will ignore the new American sanctions and continue buying Iranian crude. China, Iran's largest customer, may be especially reluctant to cut Iran off because of the trade tensions between Beijing and Washington.
New Delhi has been playing closely with Washington and the US has been pressing India since 2004 to stay away from Iranian oil. The US has a played a role in getting India closer to the Saudis. Iran has been offering India discounts for New Delhi agreeing to boost imports, as the OPEC member is keen to eat into the market share of other producers including top rivals Saudi Arabia and Iraq.
India would benefit buying from Iran as India then exports food to Iran.