(Persia Digest) - Donald Trump has announced he is exempting eight countries from Iran oil sanctions to prevent a price spike which may reach 100dbp if the sanctions are implemented too quickly.
Persia Digest interviewed Dr Narsi Ghorban, professor of Energy Economics in Tehran, about this issue and its impact on the price of oil. The text follows.
Will the gradual elimination of Iran’s oil customers prevent a rise in oil prices?
Oil prices increased gradually over the past six months partly due to tensions between Iran and the US, as well as Iran, Saudi Arabia and Israel. The probability of military conflict in the Persian Gulf, as well as the threat to drastic reduction of Iranian oil exports, drove the prices up close to $85 per barrel. The reduction of political tensions in Syria and the murder of Mr Ghashoggi in the Saudi Arabian Consulate in Istanbul changed the political equation in the region. But it was the announcement by the US of allowing eight main buyers of Iranian oil to continue their purchases for another six months which reassured the market that drastic changes are not going to happen in the short term. Price increase due to political reasons no longer applied. But others reason for the rapid price decline was the injection of extra crude oil partly by Saudi Arabia and Russia and partly by the increase of oil production in the US. It is estimated that nearly 3 million barrels of extra oil per day has entered the market in the past six months. This is probably the main reason for a drop in oil prices in the future as well as rumors that Saudi Arabia may leave OPEC. It is now reported that Saudi Arabia will cut half a million barrels per day from its exports in order to support oil prices.
Are the required infrastructures in place to set off the lack of Iranian oil on the market?
The gradual elimination of Iranian oil from the market has been advocated by past and present US administrations. The idea is to eliminate the purchase of Iranian crude oil by its major customers in such a way that it does not lead to price hikes on the market. The Obama Administration was able to get a resolution from the UN and get European Union support in sanctioning Iran and particularly the oil industry. It reduced the Iranian crude oil export to around 1 million barrels per day.
The present administration has neither the UN resolution nor the European support to repeat the previous scenario. However, it has carefully studied all the mechanisms tried by Iran to by-pass oil and banking sanctions in the past and they claim that they have blocked all these loopholes. But as the European countries, China, Russia, India and Turkey are not fully cooperating with these sanctions, the chances of success in reducing the Iranian oil exports to less than 1 million barrels per day is not high.
Dr. Ghorban has been an independent energy consultant in UK and Iran since 1979 in which position he has consulted several organizations and international companies including the Organization of Petroleum Exporting Countries (OPEC). He serves as Director of Narkangan Gas to Liquid International Co. He has also worked with the Institute for Political and International Studies, the Institute for International Energy Studies and a number of Iranian companies engaged in oil, gas and petrochemicals business in Iran. Dr. Ghorban has published many articles and scientific papers in various international journals. He has a B.Sc. from the American University of Beirut, an M. Phil from Brunel University, UK, and a Ph.D. in Energy Economics from London University. He is a prominent expert in this field in Iran.
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