US sanctions on Iran have become a potential driver of oil prices and other sectors of the energy industry at present. There is no doubt in the fact that oil prices have always been unpredictable. But with the wave of sanctions, the industry experts believe that the prices might soar as high as $100 per barrel. Fereidun Fesharaki, the founder and chairman of consultancy FACTS Global Energy says that the ongoing trade friction between the U.S. and China is holding back the oil prices from edging up.

The history of sanctions dates back to the year 1979, but keeping the present scenario in mind, the year 2015 has a major impact on the present global market conditions. 

During the Obama regime, on October 18, 2015, Iran agreed on taking initiatives to curb its nuclear program. In return, Iran demanded the sanctions imposed on it by UN, US and EU to be lifted.

The Middle East country fulfilled all the commitments under the nuclear deal on January 16, 2016, which was verified by the International Atomic Energy Agency (IAEA) and as a result, US decided to lift the secondary sanctions.

This story took a steep turn on May 9, 2018, when President Trump withdrew from the Iranian nuclear deal and decided to re-impose unilateral sanctions on Iran.

The first wave of sanctions that hit Tehran in August 2018 affected the purchase or acquisition of US dollar banknotes by Iran and the country’s automotive industry. The second wave of sanctions, which are scheduled for November 4, 2018, will target the petroleum sector.

After the announcement of US sanctions against Iran, the production of the OPEC countries started to stumble which increased the volatility of oil prices. Some days, the prices increased over supply concerns and on the other days, it got support from the decreasing US inventories.  

As evident from the recent updates, the energy industry is facing the effects of sanctions even before its imposition. On August 20, 2018 oil prices increased on the back of supply concerns due to the sanctions which are to hit Iran in November. This was the first visible effect of US sanctions on oil prices. After that, on August 29, 2018, the market had signs of stability as the production rate outside OPEC improved over Iranian crude supply concerns.

The US sanctions dominated the market on September 24, 2018, which resulted in the hike in oil prices. And, when the oil prices rose to a 4-year high on September 25, 2018, all the OPEC and non-OPEC countries decided to increase the production. This time Brent was at $81.45/barrel which sent a wave of concern across the global economy.

Among the OPEC countries, Iran is the third largest crude producer. Certainly, it will not at all be easy to mitigate the effects of 3806 bbl/d/1K (annual crude production of Iran) of supply cut.

The International Court of Justice (ICJ) gave a decision against US when Iran dragged US to the (ICJ) on August 27, 2018. But the decision of Trump has still been the same. Now, it will be interesting to see how the market will respond after the imposition of the second wave of US sanctions from November 4.

This case study has been researched and prepared by Energy Dais - The world’s First Fullstream Oil & Gas Solutions Platform.

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