This post was last updated on August 2nd, 2018 at 07:32 am
Destabilization is on the cards for the oil market, following Trump’s re-imposition of sanctions against Iran. This decision has sparked a wave of monopolization among the oil bulls like Saudi Arabia, Russia and other beneficiaries of higher prices.
The industry experts have dubbed it as “the worst deal ever,” because it will unreasonably remove a myriad amount of oil from the supply chain. Even the leading oil procurers now fear rivalry with the US for continuing business ties with Iran.
Moreover, global markets are already under stress after Organization of the Petroleum Exporting Countries (OPEC) and Russia pulled back oil production. Iran, being one of the world’s leading oil exporters, ships over 2 million barrels per day across Asia and Europe. Therefore, losing its supplies would only elevate tensions.
Under Barack Obama’s presidency, the sanctions imposed on Iran in 2012, abetted by a European Union ban, reduced the country’s crude exports by 50 per cent. However, this might not be the case now because France, Germany and the UK are still favoring the nuclear deal.
Saudi Arabia, the world’s largest crude oil exporter, has come out as a rescuer, but is it really on a recuing spree? “The kingdom will tie-up with major producers and consumers within and outside OPEC to mitigate the impact of any supply shortages,” the state-run Saudi news agency reported.
But oil traders seem to be unconvinced with the statement. Though the kingdom has assured that it will fill the gap for the deficient Iranian supplies, but why is it acting modest? Will it not step up to avail the benefit? Of course it will!
Soon after Trump’s announcement on Iran sanctions, the crude oil prices surged, with the standard West Texas Intermediate scaling up $2.19, or 3.2 per cent, to $71.25 per barrel for June. Further, high oil prices would also help the Saudi Arabia Crown Prince Mohammed Bin Salman to foster his Vision 2030 program aimed at diversifying the Saudi economy, minus oil.
Another reason that raises uncertainty is that over the past two years, Saudi Arabia, along with OPEC and Russia is suspending exports to gradually tumbledown world inventories to boost prices. Saudi Arabia has also pointed towards reducing those stockpiles further.
In a nutshell, counterbalancing the oil market from Saudi’s monopolization will be a lengthy process, for which, sustainability is the key. Now the ball is the court of OPEC leaders, who must put joint efforts with non-OPEC partners to support the oil market and reinstate stability, after the nastiest oil cycle till date.
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