The impacts of fresh US sanctions on Iran have been cushioned by high oil prices and Washington’s international isolation, with Tehran being better placed to weather the storm, a Reuters analysis says.
October marked a reversal for the crude-oil market, which had rallied sharply in 2018, with gains fueled in part by fears that the Trump administrations renewal of sanctions against Iran, bottlenecks in U.S. shale-oil producing regions and strong domestic economic growth would tighten the oil market. WTI hit a nearly four-year high above $76 a barrel on Oct. 3, while Brent crude LCOF9, -1.43% the global benchmark, topped $86 a barrel. Brent is off more than 18% from its recent high.
Citing officials and analysts, the news agency said while the US sanctions will probably trigger recession in Iran next year, they will not lead to an economic meltdown.
US President Donald Trump on Monday decided to trumpet sanctions on Iran not with a speech, but a Twitter meme in reference to Game of Thrones, "Sanctions are coming."
Video: Iranian FM blasts U.S. sanctions on Tehran
“Iran’s situation is better than pre-2016 because of high oil prices and the fact that the US is isolated this time,” the report by Reuters quoted a European diplomat as saying.
The diplomat’s comments echo the official stance of the Iranian government, which says the recent rise in oil prices has offset the impact of US sanctions on Iran’s oil exports.
What will happen in our region?
“Trump thought he could shrink our country’s oil revenues by imposing sanctions on Iran’s oil and cutting its exports, but the rise in oil prices did not let that happen,” Mohammad Baqer Nobakht, the head of Iran’s Planning and Budget Organization, said last month.
US tells world to steer clear of Iranian oil tankers
The US has also granted waivers to almost all key clients of Iran’s crude oil for fear of further hikes in oil prices. The countries exempted from the US sanctions on Iran’s oil exports include China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea, which together took in over 80 percent of Iran's oil exports last year.
Special Rep. Hook: We want to alert nations of the risk of doing business with #Irans shipping sector. If Iranian tankers make calls to your ports or transit through your waterways, this comes at great risk…Protect your port, protect your business, and promote maritime safety. pic.twitter.com/eseAnu9DAd
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However, Iran says the waivers are not enough to keep the oil price down, and oil consumers are set for “painful months” ahead because of insufficient supplies.
After global insurers withdrew coverage from Iranian vessels, the Islamic Republic will have to turn to domestic insurance corporations, which in turn won’t be able to meet the expense in case of maritime accidents that could run into billions of dollars, according to the top official.
Meanwhile, as the European diplomat told Reuters, the US isolation under President Donald Trump would also reduce the impact of its unilateral sanctions on the Islamic Republic.
The previous sanctions on Iran, imposed by Trump’s predecessor Barack Obama, were supported by the UN Security Council and the European Union. However, this time the US is alone, and the entire world, except for a few countries, have vowed to maintain business with Iran.
“It will be a difficult period but Iran’s economy will withstand it for various reasons,” a second diplomat told Reuters, “including (the fact of) Russia being under (US and EU) sanctions, Saudi Arabia having its own financial and political issues, and (trade war) between China and the United States.”
Oil testing lower as buyers flee for the hills, WTI dropping from $60.50
The report also quoted a Fitch solutions analyst as saying that the new sanctions would not lead to the collapse of the Iranian economy, as the country would be able to keep exporting a significant volume of its crude oil.
“The Armed Forces includes the Islamic Revolutionary Guard Corps (IRGC), the regimes praetorians; the Law Enforcement Force (LEF) of the Islamic Republic of Iran, the state police; the Basij, or religious police; the Artesh, or conventional military; the General Staff of the Armed Forces; and the Ministry of Defense and Armed Forces Logistics (MODAFL),” according to information provided by FDD.
“Tehran is still likely to see a substantial share of its foreign exchange earnings maintained,” Andrine Skjelland told Reuters. “This will enable Tehran to continue subsidizing imports of selected basic goods, keeping the costs of these down and thus limiting inflation to some extent.”
One of the most compelling explanations for oils drop is that it is a largely speculatively driven. Looking to net speculative futures positioning to start the year, long interest behind the market has surged to an unprecedented record high. Exposure had far outpaced the progress on the markets price itself. In turn, a rebalance seemed a natural occurrence, and there is plenty of fuel to burn in the meantime. We are still a long way from the net speculative positioning returning to levels more in line with just a few years ago, and that can be used as evidence that there is a more substantial drop in price to come. That said, true and committed trends are few and far between nowadays. Bullish or risk-on moves are more familiar but they carry very little conviction or momentum. There are tentative losses to be found in US and global equities, emerging market assets and many other risk benchmarks. Yet it would still be premature to label these sure course. To assume crude can drum up conviction when so many other assets are struggling is impractical. At the very least, a break in this bearish fever is highly likely on a purely statistical basis. That does not mean the lift would usher in a bullish response with the same degree of momentum, but it could very well play as a crucial factor. To commit to the bearish trend would be jumping into a winded trade – not to be taken lightly either. We focus in on crude oil in todays Quick Take Video.
Video: Russia, Germany slam US sanctions on Iran
The new round of US sanctions, which had been lifted under a multilateral 2015 nuclear accord with Iran, came back into force on Nov. 5, drawing criticisms from the United Nations as well as Washington’s allies in the European Union.
The bans – the second of their kind since Washington’s withdrawal from the deal in May — take aim at Iran’s banking, insurance and energy sectors, targeting more than 700 entities. The first round was reinstated in August.
Chinas Oil Imports Surge To Record High | OilPrice.com
The European Union, which coordinated the talks leading to the nuclear deal, is set to enact a financial mechanism to facilitate banking transactions with Iran.