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Goldman Sees Oil Exports Giving US Leverage in Iran Sanctions

14 May 2018

Hours before Trump's announcement, federal government forecasters raised their estimate for 2018 oil prices by 10.5% to an average of $65.58 a barrel.

In 2016, the European Union exported more than €8.2 billion ($9.7 billion) worth of goods to Iran, while importing nearly €5.5 billion ($6.5 billion) from there, according to the European Commission.

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Thanks to OPEC's efforts to normalize the crude oil market in the wake of the 2014 price war, crude oil prices have almost tripled from their early 2016 low and are up 22 percent just since February.

"The CPI data is close to the Fed mandate on an annual basis, but the market remains happy as long as inflation is not accelerating out of control", said Adam Sarhan founder of 50 Park Investment. A price of $150, taking out the 2008 high, may also be a real possibility if events in the Middle East continue to escalate, as we have witnessed in recent days.

Analysts polled by S&P Global Platts expect an immediate impact of less than 200,000 bpd of Iranian oil shut in, possibly rising to 500,000 bpd after six months, as the deadline for sanctions to kick in nears.

In addition, it may soon become apparent that the US and Saudi Arabia do not exactly agree on what is needed to maintain oil market stability.

Barkindo said the cartel was committed to seeing the agreement through, but he hinted that market conditions could spur a change. That could hold prices down in a market that has already been short on supply because of production cuts by OPEC and Russian Federation.

On Thursday, the US Treasury together with the United Arab Emirates announced action to disrupt an alleged "large scale" currency exchange network run by Iran's powerful Islamic Revolutionary Guard Corps. Europeans fear a collapse of the deal could intensify conflicts in the Middle East.

Thanks to the agreement struck under President Obama in 2015, Iran surrendered 97 percent of its enriched uranium stockpile, destroyed much of its nuclear infrastructure, and submitted to the most rigorous inspection regimen in history. It's not clear when an attack could come, nor what form it could take.

Harsh economic sanctions made the accord possible because they severely restricted Iran's ability to conduct global banking transactions, sell its oil, purchase technology and keep its economy afloat. Why risk an untethered Iran when you knew what the tethered one was up to? "Our oil industry's development will continue even if new sanctions are imposed on Iran". It enabled Iran's bad behavior across the region, enriched and empowered the Islamic Republic's military and terrorist operations, and put them on a path to a massive, modern nuclear program with a nuclear breakout time of just weeks in less than eight years. China imported a median of 420,000 barrels per day in 2014 after which 481,000 barrels per day in 2015, in response to ClipperData.

That's still a sizable amount of oil, especially considering the strong demand around the world.

Saudi Arabia, for instance, has the ability to crank up output.

Many analysts expect oil prices to rise significantly, as the market adjusts to looming USA sanctions and Iran's exports sink amid strong demand.

Indeed, it is the clash between the United States and the European Union on this issue that is most striking, setting the scene for significant transatlantic tensions in the coming weeks, not least with separate bilateral battles over trade issues also in the offing. In fact, the Energy Information Administration lifted its 2019 domestic output forecast on Tuesday by almost 4% to a record 11.9 million barrels per day. Today, there is no Iranian official who will be able to turn around and say, "let's go talk to the USA about what we're doing in the region".

Goldman Sees Oil Exports Giving US Leverage in Iran Sanctions