The US Lifts Iran Oil Sanction Waiver

A new order in the works

Since May 2018, when president Donald Trump backed out of the Iran nuclear deal and shifted to reimpose sanctions, it was assured by US officials that he would not provide exemptions allowing allies to import oil from Iran. Eventually, the tight market required some damage control for the US market.

After backing out of the Iran Nuclear deal in May 2018, the tight market required the US administration to provide sanction waivers to allies importing Iranian oil. These exemptions were short-lived, however. The Trump administration has announced it will be removing waivers from some of Iran’s primary importers as of May 2nd, in an effort to bring Iran’s crude exports to zero. Countries concerned include China, India, Japan, South Korea, and Turkey, who are all at risk of heavy penalties if they continue buying Iranian oil.

As a result of this policy change, oil prices skyrocketed earlier this week and other negative impacts on global energy security are looming. Threats, such as closing the Strait of Hormuz, for example, – a vital energy chokepoint– are up in the air but many are confident that despite the US announcement, Iran will manage to find buyers with whom to trade.

In an effort to mitigate stock imbalances, other OPEC countries will need to step up and increase their production to compensate for lost Iranian oil. With the threat of eventual shortages, a proactive approach is vital.

Criticism toward the US strategy is multiplying as its humanitarian rationale seems inconsistent at best. While the White House’s explanation for pulling out of the Iran nuclear deal revolved in part around Iran’s support of violent Middle Eastern militias, it was silent vis-a-vis recent atrocities in Saudi Arabia which resulted in 38 dead. Instead, it ascertained that it has been working closely with Saudi Arabia to ensure that the lost barrels are compensated for by increased Saudi production. More privately, though, Saudi officials have suggested an unwillingness to comply with US demands, much like the UAE who has repeatedly stated that it would not elevate production unless a shortage emerges.

An OPEC+ meeting is scheduled for June, during which oil producing countries will have to strategize an efficient way to maintain the oil market’s balance, without ceding too much power to the Trump administration. Regardless, the dynamics of oil trade have been disrupted and if importing countries comply to avoid US sanctions, a new energy order will necessarily be in the works.

Madeleine Bienvenu

References: says-tehran


Photo by Keith Zhu on Unsplash

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