The main objective sought by the Trump administration is to drivedown to nil Iran's oil exports in November in a bid to impose its own policies.
Iran's oil sector has already experienced embargo. But thedifference is that in 2012 Iran's oil buyers enjoyed sanctions waiver aftercutting their oil purchase from Iran by 20% over a six-month period. This time,the Trump administration eyes a full halt to Iran's oil exports.
Such unlawful and unilateral move by the US administration will leadto the failure of the policy of eliminating Iran from global oil market.
Although the US government has embarked on a diplomatic charmoffensive to convince buyers of Iran's oil to stop purchasing from Tehran in abid to ratchet up unprecedented pressure on the Islamic Republic, global marketrules do not follow Washington's decision. To that effect, the USadministration's policy of imposing sanctions on Iran's oil will face seriouschallenges for a variety of reasons:
1. Oil Price Hike: Any decline in or halt to Iran's oil exports woulddefinitely impact global oil supply, which would in return introduce a shock tomarkets and drive up energy prices. In other words, any decline in or halt toIran's oil exports would pressure oil markets to unprecedented levels since the1973-1974 and 1979-1980 oil crises. Oil prices will be on the receiving end ofany such pressure on the market, which would definitely face strong oppositionfrom big consumers like China and European nations.
2. No Suitable Alternative: Iran is currently exporting about 2.5 mb/d of oil. TheUS has announced it will do its utmost to minimize any disturbance in oilmarkets through relying on Saudi Arabia and some other Arab oil producers;however, the reality is that no country, even Saudi Arabia, would be able tooffset the market prospective shortage in the short term in case Iran's oil isfrozen out. First and foremost there are doubts about Saudi Arabia's allegedspare capacity of 2 mb/d. Second, even if there is such capacity the Saudiswill have to win over fellow OPEC members for any increase in output. Without aconsensus, it would be impossible for the Saudi government to lift its outputto such extent. Meantime, oil markets are hit by oil shortage due to war inLibya and domestic unrest in Venezuela, not to mention the drop in Angolan andNigerian oil production. Therefore, a halt to Iran's oil exports would create avoid which may not be filled easily. Even if such void is filled with the turnof time, oil prices will be struck with shock in the short and mid-term.
3. Consumers Independence: After the US unveiled its plot against Iran's oil, manycountries including India, China, Japan and South Korea disagreed as they areamong traditional buyers of Iran's oil. Under the previous round of sanctions, thesecountries showed their determination to keep buying Iran's oil under anycircumstances. What strengthens the position of the traditional buyers ofIran's oil now is that Europe would not follow US sanctions. If the EuropeanUnion's proposed package for Iran covers oil sale, Iran will continue to selloil to Asia and Europe.
4. Producers' Opposition: In addition to consumers' concerns about any change inIran's oil supply, some producers remain opposed to the US decision to imposesanctions on Iran's crude oil. Russia's Permanent Representative to the UnitedNations (Vienna), Ambassador Extraordinary and Plenipotentiary, MikhailIvanovich Ulyanov, reaffirmed his country's opposition to the imposition ofunilateral sanctions on Iran, calling for Iran's sustained oil supply onmarkets. He made it clear that Iran's oil would stabilize global market.
The US initially claimed that it had no intention of granting anywaiver to buyers of Iran's oil, saying it was necessary for serving nationalinterests. But as time passed and consumers resisted US pressure, Washingtonhad to rethink and announce that it would consider sanctions waivers for somecountries. The US is expected to grant exemption to India, Japan, South Koreaand China to be able to keep buying oil from Iran.
Should the US refuse to grant such exemptions, it will faceopposition in its anti-Iran policy. It has become common knowledge that theUS's unilateral actions against Iran have failed to win any consensus allacross the globe. Even Washington's European allies disagree with thesesanctions. Furthermore, buyers of Iran's oil will bow to US pressure to stop importingIran's oil only if they receive guarantees for their energy supply, which isimpossible now.
Furthermore, any oil price hike would significantly drive up energycommodity prices, including gasoline prices, in the US, which would directlyimpact people's everyday life. That would pose a threat to Republicans' chanceof victory in the midterm elections scheduled for November 6 this year in theUS. That represents a big challenge for President Trump who has sought to provehimself as a successful head of state. Should he stop targeting Iran's oil, hisforeign policy will face challenges, but if he exerts pressure on Iran hisparty will be defeated in the mid-term elections.
While continuing to apparently impose tough sanctions on Iran's oilsector, the Trump administration is unlikely to be able to force buyers of Iranoil to cut their imports from Iran.
Courtesy of Iran Petroleum