Prices initially rose after US announced end to waivers on Iranian oil exports, but economists say long-term effects unclear
Global crude oil prices have spiked on jittery markets following the US announcement that sanction waivers on Iranian oil exports will end on May 2. However, economic analysts say the long-term impact of the American policy decision remains unclear.
Earlier this week, the Trump Administration said it would not renew exemptions granted to countries that import a large part of their oil supplies from Iran in a bid to tighten the economic noose and choke off crucial revenues to the Islamic Republic. According to the Organization of Petroleum Exporting Countries (OPEC), 47.6 percent, or some $52.7 billion, of all Iranian revenues in 2018 came from petroleum exports.
Last November, the White House reimposed harsh economic sanctions on Tehran yet granted eight countries – including China, India, Japan, South Korea and Italy – six-month waivers in a bid to lessen the blow and allow them time to find a new source for oil. China imports nearly 628,000 barrels from Iran each day, and India 357,000 barrels.
News of the waivers coming to an end led to an immediate rise in oil prices. According to the AAA gas-price tracking website, they are expected to rise at least $3 per gallon in the US in the coming months.
Despite this, some analysts believe the market will ultimately stabilize.
“The signals are that the price of oil is going to level and decline somewhat in the future,” Dr. Alex Coman, a value creation expert at the Academic College of Tel Aviv-Yafo, told The Media Line.
“US production is usually coordinated with global oil prices. When oil prices go up, it becomes profitable to pump oil and gas from sand [in America]. When the prices go down, these projects are shut down,” he explained.
Nevertheless, Coman believes that as countries increasingly turn away from fossil fuels toward renewable energy sources, oil-wealthy nations will ultimately become more and more “frustrated” economically.
“They will have social unrest,” he emphasized. “I think that in the long-term, this [reliance on oil] is going to blow up in their faces.”
Prof. Zvi Eckstein, dean of the Tiomkin School and head of the Aaron Institute for Economic Policy at the Interdisciplinary Center Herzliya, argues that Iran’s total share of the global oil market remains “small” and, as such, the overall impact will be minor.
“Oil prices fluctuate quite heavily independently of Iran,” Eckstein asserted to The Media Line, “so I would expect this to have a minor or even zero impact on oil prices.”
Other economic experts were not as optimistic.
“Our studies show that without any circumvention of the sanctions or any counterbalancing by other suppliers, oil prices could even surpass $90,” Dawud Ansari, a research associate in energy, transportation and environment at the German Institute for Economic Research (DIW Berlin), told The Media Line.
Ansari was referring to the Brent classification of crude oil, which as of the morning of April 25, was trading at $74.53 per barrel.
From a security standpoint, he added, “the consequences are ambiguous and hard to predict. Nevertheless, it is safe to say that the sanctions have already contributed to a gradual erosion of the global order and regional stability.”
Earlier this month, the Trump Administration also designated the Islamic Revolutionary Guard Corps (IRGC) a terrorist organization, the first time any country’s military branch has been labeled in such a way. Washington is hoping the combined pressure of these latest decisions will persuade Iran to negotiate a new deal to replace the 2015 Joint Comprehensive Plan of Action (JCPOA), from which Trump unilaterally withdrew in May of last year.
Regarding the circumvention of sanctions on oil exports, all the experts were in agreement that Tehran would manage to at least partially bypass the US, especially given the fact that many countries do not support – and in fact oppose – the reimposition of sanctions on the Islamic Republic.
Officials from both China and Turkey have vowed to continue importing Iranian oil in defiance of Trump’s directive.
“Iranian oil exports would decrease substantially… but it is possible that some oil trade will continue,” Ansari affirmed. “It is especially unlikely that the US would risk an open confrontation with China, the largest importer of Iranian oil. Lastly, it would also be possible to see some deals happening under the table.”
“The oil market is very liquid, and many ships move oil on the oceans,” he said. “It’s very hard to pinpoint [which] country or company violated the sanctions, so my impression is that the impact on Iranian oil exports would be minimal.”