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What Trump's decision on the Iran nuclear deal means for the price of oil



Photo: ABEDIN TAHERKENAREH / EPA-EFE / REX / Shutterstock (9623271

b) On April 10, 2018, the Iranians review the exchange rate surrounding an exchange deal in Tehran, Iran. President Hassan Rouhani and his Cabinet have been criticized for slipping currency, which is threatening US President Donald Trump to withdraw from a nuclear deal and reintroducing potentially crippling sanctions. (Abedin Taherkenareh / Epa-Eve / Rex / Shutterstock / Abedin Taherkenareh / Epa-Epe / Rex / Shutterstock)

President Trump has until 12 May to decide whether to scrap the nuclear dispute with Iran and impose sanctions, but The uncertainty about his The Iranian economy and the international oil markets have already failed due to the decision.

Since December, the Iranian currency has lost one third of its value. Foreign investors, who have become nervous since Trump took office, have fulfilled only a fraction of their obligations. And while the Iranian economy has created 600,000 jobs annually since the nuclear agreement came in 2016, unemployment has reached an all-time high.

"There is panic among the Iranians about the future, and Trump has exacerbated the financial uncertainty," said Suzanne Maloney, Senior Fellow, Brookings Institution.

The rising price of uncertainty has also changed on the international crude oil markets. The price of West Texas Intermediate rose for the first time since 2014 to over $ 70 a barrel on Monday. He fears that the renewed US sanctions would force international companies to buy less Iranian oil or pay heavy penalties.

Oil experts estimate that renewed sanctions could require around 350,000 to 500,000 barrels per day for Iran's world crude oil markets within months, a modest but significant amount. And more could be jeopardized later, potentially adding $ 7 a barrel to world prices, according to a Goldman Sachs report to investors. Iran exports about 2.6 million barrels a day.

Large projects could also be threatened, especially in the oil and gas sectors, which underinvested during the years of sanctions. The French oil giant Total signed a 20-year contract with the National Iranian Oil Co. last July starting with a $ 2 billion project with 30 holes, two platforms and two subsea pipelines to boost natural gas production in the south of Iran Pars field. The Chinese National Petroleum Corp. is 30 percent partner.

But Total, whose CEO was one of 15 European CEOs who dined with Trump at the Davos conference on January 25, is also interested in the United States and does not want to violate US law.

Under the Joint Comprehensive Action Plan, reached in July 2015, Iran agreed to urgent reviews and restrictions of its nuclear program. In return, the United States and its five main partners – Russia, China, France, the United Kingdom and Germany – agreed to lift restrictions on Iran's oil sales, lift certain financial restrictions and pave the way for foreign investment. The Iranians celebrated loudly in the streets of Tehran after the deal was signed.

Iran's oil sales jumped. Its exports of non-agricultural products doubled and its imports of non-agricultural products increased 12-fold.

For the United States, the agreement meant that the White House would waive restrictions that would allow international companies to conduct transactions, including oil transactions, through the Central Bank of Iran.

The current resignation expires on May 12th. If Trump does not issue a new one, his government will begin to encourage oil traders and companies around the world – including those in European countries that support the nuclear deal – to make purchases, according to Richard Nephew, a senior researcher at the Global Energy Policy Center Columbia University. Nephew was an important part of the US team that had negotiated the Iran deal.

Given that the new sanctions under Trump would impose penalties on any company doing business in the US, European refineries would likely comply. They make up about a quarter of Iran's exports. But refineries and dealers in Asia could make a bargain.

"I have spoken to more than enough companies – they understand what the sanctioning environment will look like and what the US government will demand from them," said nephew. "And so they look ahead, whether or not they have to cut corners, and presumably those who do not want to follow, they'll lick their sideburns to see what kind of discounted oil they can get out of Iran."

Prior to a deal with In Iran, the Obama administration pushed oil companies to make "significant" cuts on purchases, typically about 20 percent, every 180 days. Iran's oil sales were reduced by more than 1 million barrels daily.

The flood of US shale oil, which began in 2009, was able to offset the loss of Iranian exports slightly. Saudi Arabia, Iran's rival and leading critic of the nuclear deal, also promised to offset the loss of Iranian production. Crude oil prices remained low.

Now, cuts in Iranian exports would be more effective. Political unrest in Venezuela has reduced oil exports. Global oil demand is rising thanks to faster economic growth. World oil reserves are lower than in nearly four years. And so far, the Saudis, who are anxious to further reduce inventories, have not offered to make good on Iranian crude withdrawn from the market.

The decline in Iran's oil exports would also hurt the Islamic Republic at home. Crude oil and petroleum products account for more than 60 percent of Iran's export revenue and a large portion of the state budget.

Iran has some leeway for Trump's decision to undermine the agreement. Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, said in an email that "it will take a while for the sanctions to be as bad as 2013, when Iran's oil exports bottomed out." a United Nations process that would take two or three months for European leaders to question secondary sanctions against their companies.

In addition, he added that even with a decline in oil exports to 1.5 million barrels a day, oil exports would generate about $ 40 billion a year in revenue. And Iran has built up cash reserves.

The biggest costs of changing US policy could be political. Trump could weaken the hand of the moderate President Hassan Rouhani, who supported the deal. Salehi-Isfahani recently wrote: "If Rohani ever had the key to the door of prosperity, as he liked to express it in his 2013 presidential campaign, he could not find the keyhole in time."


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