Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Will More Hawkish American Foreign Policy Affect Oil Markets?

Published 2018-03-14, 02:22 a/m
Updated 2023-07-09, 06:31 a/m

Yesterday, Tuesday, March 13, President Trump announced that CIA Director Mike Pompeo would replace Rex Tillerson as U.S. Secretary of State. Tillerson was generally seen as a supporter of the Iran nuclear deal that was negotiated during the Obama administration, whereas President Trump and Director Pompeo have been vocal in their desire to overturn the deal.

Even though both Trump and Pompeo have opposed the Iran nuclear agreement, the deal is not likely to be overturned anytime soon. However, President Trump could decide to reinstate U.S. sanctions against Iran. According to a law passed by Congress called INARA, the president is required to certify Iran’s compliance with the nuclear deal every 90 days. Every 90 days the president must also decide if he will certify if it remains in the interest of the United States to suspend sanctions against Iran. If the president decides that it is no longer in the interest of the United States to suspend sanctions against Iran, Iranian oil exports could immediately be impacted.

In January 2018, President Trump decertified the Iran nuclear deal, which means that, according to the U.S., Iran is not complying with the deal. However, President Trump continued to suspend U.S. sanctions against Iran. Nevertheless, the president also said he would ensure that sanctions return on May 12 unless Congress and the European Union agree to support significant changes to the Iran nuclear agreement.

While Tillerson was said to be in favor of continuing the sanctions suspensions, Pompeo is thought to be more hawkish on the Iran nuclear deal. How will the oil market be impacted if, come 12 May, the Trump administration decides to reinstate the sanctions against Iran now that Tillerson is gone? According to S&P Global Platts senior oil reporter and OPEC specialist Herman Wang, a full reinstatement of sanctions could impact “somewhere in the range of 400,000 to 800,000 bpd” of oil exports from Iran.

The amount would depend on whether the European Union follows America’s lead.

The sudden disappearance of even 400,000 bpd from the market would push oil prices higher. News from Iran tends to grab the attention of traders, so news of a 400,000 bpd change from Iran could have a larger immediate impact than similar news from another OPEC country.

However, the price jump would be temporary, as other oil producers can be expected to fill the gap. OPEC and its non-OPEC counterparts will be meeting only a month later in June. When they meet they will likely approve a roll-back of their production cuts.

They would almost certainly take a reduction in Iranian exports into consideration and perhaps increase the production numbers permitted for other countries such as Saudi Arabia, the UAE and Russia. Oil producers in Canada, the United States, Brazil, England and Norway would also likely boost production and exports as well. There is sufficient spare capacity in the market to make up for a 400,000 bpd loss of supply.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.