By Sonny Atumah

The United States imposed wide-ranging sanctions on Iran kick in tomorrow Nov 4. President Donald Trump’s administration is to isolate Iran from global markets over its alleged pursuit of nuclear weapons. In October 2017, Trump announced that he would decertify the Iranian Nuclear Accord or deal.

Oil

The Joint Comprehensive Plan of Action, JCPOA otherwise known as the Iranian Nuclear Accord  was entered into with the five permanent members of the United Nations Security Council plus Germany (P5+1) in 2015.

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The deal empowered the United States to watch over Iran with the US President required to certify that Iran complied with the agreement every 90 days. It was to be subjected to regular checks by international inspectors to ensure no perverse activities took place. From the JCPOA, Iran’s nuclear capacity was limited to civilian programme for power and medical purposes.

The United States has accused Iran of not complying with the JCPOA. It alleged that tens of billions of dollars of windfall from the lifted sanctions had been used to expand the country’s reach in the Middle East region, and also further its role as the world’s leading state sponsor of terrorism. The full economic sanction was to block Iran’s access to international trade and finance including billions of dollars in oil revenue and assets.

The economic sanctions on Iran would have consequences on global oil inventory and price stability. Making up for crude oil that would go offline has been a subject of concern in the global oil market. Iran is the second largest producer of crude in OPEC after Saudi Arabia. About four percent of global daily oil supply comes from Iran and the threat of losing that quantity drove oil prices to a four-year high at US$86 a barrel early October. Iran at the peak of its exports in June had 2.7 million bpd which had dropped to about 1.9 million bpd by September, from S&P Global Platts analytics estimates.

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What is not clear is whether the two biggest importers of Iranian oil, China and India along with Japan, Turkey, Italy, Spain and Greece would have import waivers or cut down imports. Since this week, Iran began selling crude oil to private companies for export to counter U.S. sanctions. Out of one million barrels offered on the energy bourse, 280,000 barrels were sold at a discounted rate of US$74.85 per barrel.

Analysts predict that between 1 million and 1.5 million barrels per day, bpd of oil would be offline by the end of the 2018. Investors wondered whether Saudi Arabia and its oil-producing allies will be able to offset global supply losses anticipated from Iran when sanctions begin. But again, the global crude oil market is very unpredictable. Crude futures have been falling in tandem with weakness in worldwide equity markets. Oil futures are under pressure as losses in the Chinese stock market indicated a potential slowdown in energy demand, even when it was expected that the U.S. sanctions on Iran would tighten global supplies.

West Texas Intermediate, WTI crude for December delivery on the New York Mercantile Exchange, NYMEX lost 55 cents to settle at US$67.04 a barrel. The U.S. benchmark saw a loss of roughly 2.4 percent for last week. December Brent crude, the global benchmark, fell 28 cents to US$77.34 a barrel.

From the Market Watch Myra Saefong reported that oil prices last week, posted a third weekly decline as sharp losses in global equity markets weighed on demand prospects. U.S. stock indexes had turned lower Monday by the time oil futures settled, and the Shanghai Composite index fell by more than 2 percent as U.S.-China trade relations continued to rattle investors. Recent data has shown that “profits at industrial firms slowed for a fifth month” in China. The impact of tariffs is gradually showing up in the data and this may be lowering people’s growth outlook for the country and weighing on demand expectations.

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Who benefits from the US sanctions on Iran? In recent weeks, rising production and exports between both the Organization of the Petroleum Exporting Countries and non-OPEC counterparts, have been weighing on the market from the supply side, while heightened stock market vulnerability and concerns for the level of China’s continued consumption have nagged on demand.

Rising U.S. crude inventories also were a pressure point, with crude inventories surging 28.7 million barrels over the last five weeks, including the absorption of 3.5 million barrels from the Strategic Petroleum Reserve. Although the rise in crude inventories in part reflects seasonal factors, inventories of U.S. energy products have seen a decline of 10 million barrels over the same period. Last week, the U.S. crude oil stockpiles rose for the fifth consecutive week, the Energy Information Administration said on Wednesday. Crude inventories rose by 6.3 million barrels in the week to Oct. 19, compared with analyst expectations for an increase of 3.7 million barrels. In the last five weeks, overall U.S. stocks have risen to 422 million barrels, not including the country’s strategic reserve, which holds about 656 million barrels.