US President Donald Trump’s decision to exit the international nuclear deal with Iran on May 8th, the Joint Comprehensive Plan of Action (JCPOA), predictably caused oil prices to bounce in early trading. Brent crude moved closer to $77 a barrel, at $76.8, a rise of more than 2% and hitting three and a half year highs.
Oil exports from Iran are not expected to be seriously impacted initially from the re-introduction of sanctions with analysts predicting that around 200,000 barrels per day (bpd) could be affected rising to 500,000 bpd after six months.
The current pullback in production by members of the Organisation of the Petroleum Exporting Countries (OPEC) and non-members, led by Russia, has seen 1.8mn bpd taken out of global supplies. It is thought that rising production in the US itself could fill any gap in supplies caused by Iran’s increasing economic alienation or Saudi Arabia, OPEC’s biggest pumper and a growing American ally in the region, could also spike its output which has been reduced by several hundred thousand barrels since cuts began.
Looking longer-term, the continued anxiety over a possible conflict between Iran, the US and potentially the countries of the Arabian Gulf, which are politically and ideologically opposed to Tehran, will likely spook the hydrocarbon markets moving forwards adding to perennial issues such as the crises in Yemen, Syria and the economic meltdown in Venezuela.
Nevertheless, the full ramifications of President Trump’s decision, which flies in the face of general international opinion regarding the deal and future monitoring of the Islamic republic’s nuclear policies and ambitions, will depend on global reactions to the move.
Tehran may hope to continue economic activity with the European Union moving forwards, depending on the severity of the pressure imposed on member states by the US administration, while the likes of Russia and China are likely to make unilateral decisions about their future proximity to the Iranian regime.
Both Saudi Arabia and the UAE have welcomed Trump’s move with UAE Minister of State for Foreign Affairs Anwar Gargash sending out several tweets approving the decision and stating the US President’s action was “the correct one”. Meanwhile Khalid bin Salman, the Saudi Arabian Ambassador to the US, highlighted Iran’s “extremist ideology” as a factor in the deal’s failure.
Meanwhile, British Prime Minister Theresa May, French President Emmanuel Macron and German Chancellor Angela Merkel released a unified joint statement expressing their “regret and concern” at Trump’s decision and said, “Together, we emphasise our continuing commitment to the JCPOA. This agreement remains important for our shared security.”