Sanctions against Iran, their aggravation and impact on the world market

On April 22, on Monday, in conditions of a low active market due to Easter holidays in Catholic countries, oil prices have gone up sharply, overcoming significant resistance and five-month highs. Brent crude upgraded to a high of $ 74 per barrel, WTI – $ 65.90 per barrel.

The reason for such a rapid increase in oil prices was the data in a number of authoritative publications about toughening sanctions against Iran, which will be aimed at completely limiting oil exports from Iran.

The US sanctions against Iran

Earlier, in November 2018, the United States withdrew from the Iran nuclear agreement, introducing sanctions on oil exports from this country. But, in the conditions of the supply crisis in the oil market, a number of countries of the main importers of Iran have been exempted from these sanctions. These countries are: China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan.

During this period, Greece, Italy and Taiwan completely abandoned Iranian oil. The remaining countries were threatened by the US sanctions if they continue to import oil from Iran after May 2. As a result of the aggravation of sanctions against Iran, the oil market will receive less 1 million barrels per day.

Reaction of Iranian oil importers

Importers of Iranian oil, led by China, the world’s largest energy consumer, have sued the US threats. The Chinese Foreign Ministry said China’s and Iran’s trade relations are transparent and legitimate.

At the same time, Japan and South Korea will probably agree with the demands of the United States without obvious problems. Even in conditions of obvious loss for yourself. But China, India and Turkey are likely to resist. Special resistance should be expected from China and India, which will suffer significant losses.

Consequences of exacerbation of sanctions against Iran

The main aggravation associated with the complete cessation of the export of Iranian oil will be the resumption of trade tensions between the United States and China. Recently, they have only stabilized after lengthy negotiations.

Already against the background of such disagreements, stock indices are under pressure. New factors of aggravating relations between the United States and China will not only cause the cancellation of a significant part of the agreements, but may also become a driver for the aggravation of trade relations in the form of sanctions from the United States due to China’s export of Iranian oil.

Also, this situation may become another lever of the US pressure on the US-Chinese trade relations, which, despite the official end of negotiations, may return to the active phase.

Iranian reaction to the US sanctions is likely to be more radical. Since Iran in this case acts as a “bent into a dead end beast, which has nothing to lose.” Therefore, Iran’s statements of intent to close the Strait of Hormuz look very likely. Even in spite of the fact that Iran will have to resort to armed actions in which it has little chance to emerge victorious.

Such a development will block the export of oil from the Persian Gulf, through which one fifth of world oil exports pass. In turn, this will cause an incredible increase in oil prices.

But with all this, despite the loud statements of all parties to the conflict, radical action has not yet followed.

Anton Hanzenko