Published: Wed, May 16, 2018
Markets | By Otis Pena

Oil prices jump after United States abandons Iran deal, plans 'highest level' sanctions

Oil prices jump after United States abandons Iran deal, plans 'highest level' sanctions

Oil prices settled lower on Tuesday after U.S. President Donald Trump announced the country will withdraw from the Iran nuclear deal, a landmark agreement signed in 2015.

A United Arab Emirates economic official agreed Trump's decision could help Arab oil exporting economies.

NEW YORK, May 11 (Reuters) - Global benchmark Brent crude stabilized near 3-1/2-year highs on Friday as the prospect of new USA sanctions on Iran tightened the outlook for Middle East supply at a time when global crude production is only just keeping pace with rising demand.

While Gulf petro-states stand to benefit from a rise in prices, the USA move could mean new fissures in the region.

"Supply concerns have lifted oil prices", said Norbert Ruecker, head of market and commodity research at Julius Baer Zurich.

The return of the sanctions could initially reduce by 500,000 bpd Iran's current crude oil production of 3.8 million bpd, Goldman Sachs said in a note today, as carried by Reuters.

A report by Washington Post dated May 9 said that Saudi Arabia (World's largest oil exporter) could provide some cushion for the loss of Iranian supplies. On Wednesday, a Saudi energy official indicated Riyadh might raise output to offset any supply shortage. However, lack of production capacity to increase output by another 2,000,000 barrels.

In other, possibly smaller ways, Trump's decision is bad news for some countries in the Gulf.

"This will impact how the region is viewed by foreign investors".

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USA light crude was up $1.70 a barrel, or nearly 2.5%, at $70.76, near highs also last seen in late 2014.

Among things the European Union could consider, he said, are reinforcing a 1996 "blocking statute" that could allow companies to ignore sanctions. But they warned there was a risk that deteriorating conditions in Iran would push prices to $100, a level not seen since 2014. The UAE's exports to Iran are worth about 5 percent of its gross domestic product.

Boeing has yet to deliver any aircraft to Iran under those deals and said that it will "continue to follow the USA government's lead".

"These sanctions do impact all the major industries (in Iran)". The sanctions will not only bar US companies from doing business with Iran, but they also will hurt European and other companies by prohibiting them from using American banks unless they cut links with Iran.

And apart from Dubai and Oman, the wealthy Gulf oil exporting states have minimal trade and investment links with Iran, meaning they have little to lose.

"I expect the production to remain the same until the end of this (Iranian) year", Zanganeh said. Boeing separately struck another 30-airplane deal with Iran's Aseman Airlines for $3 billion at list prices.

Le Maire also proposed creating a European body that would have the same kind of powers that the U.S. Justice Department has to punish foreign companies for their trade practices.

Oman, the back-channel for US-Iran talks that paved the way for the 2015 accord, said Wednesday "the option of confrontation is not in the interest of any party".

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