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Iran sanctions could result in “short-term, volatile” increase in oil price

Tuesday November 6th 2018 at 8:08 AM

An Aberdeen expert on oil and gas says US sanctions imposed on Iran could result in a short term, volatile increase in the oil price.

Iranian president Hassan Rouhani said his country was at ‘economic war’ with America and vowed to defy restrictions which came into place yesterday and continue selling oil.

US President Donald Trump withdrew America from the nuclear deal with Iran earlier this year – calling it “the worst deal ever negotiated”.

The agreement offered eased sanctions on Tehran in exchange for reductions in its nuclear weapons development programme.

Those sanctions were reinstated in August – targeting more than 700 companies and individuals.

Alex Kemp, professor of Petroleum Economics at Aberdeen University said:

“The price of oil did go up sharply over the last few months, when it became clear that the American government was going to put sanctions on Iran – particularly on oil exports. So the market traders immediately saw the problem and marked that up.

“Iran’s production is in danger because some of the major companies which operate there had to make a choice: continue to operate there with the penalties imposed on them, or move and focus on their American exploits. Evidently, their American interests are important.

“Meanwhile, the American government has been pressuring buyers to reduce their imports of oil from Iran. Korea, for example, has already reduced their imports to next-to-nothing. Now, pressure is being put on places like China and India – which are very big importers – to reduce their imports. That’s why the price is up as far as Iran is concerned.

“In the last couple of weeks, the price has come down quite a bit. It was well-over $80 a barrel, and is now hovering around $72. That’s because re-assessment of world economic growth has taken place.

“The American sanctions on Iranian oil will have some effects and we can take it that there will be some negative effects on their abilities to produce oil. However, what is not clear is the extent to which Iran will be able to get around the sanctions. It’s possible Iran will continue to export through intermediaries like Russia.

“A blip in the price in the next few weeks, even quite a big blip upwards, wouldn’t have a major effect in investment in the North Sea. Clearly, there will be some increase in cash flows and tax revenues.

“I’d expect the price to be quite volatile. Any short-term upward blip would not cause investment to change very significantly.”

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