Oil market on alert as Iran sanctions hit

November 5, 2018 (MLN): US sanctions against importers of Iranian oil threaten the crude oil market's precarious balance and risk surging prices, all under Saudi Arabia's watchful gaze.

The US has announced that it will target buyers of Iranian oil in order to deprive Tehran of its main source of income. This will also mean that there will be major consequences for world supply as Iran is the OPEC cartel's third-largest producer.

Oil prices have fallen by nearly $15 in less than a month, after peaking in early October at their highest level in two and a half years, with a barrel of Brent at over $85.

Furthermore, if rising oil prices translate into higher prices at the pump, consumer confidence in the US itself could also suffer.

However, Secretary of State Mike Pompeo on Friday announced exemptions for eight countries, without naming them.

According to some analysts, even if the United States grants exemptions to certain countries, Washington will demand that the volume imported from Iran be significantly reduced

Turkey indicated that it was one of them and analysts believe that India, one of the world's largest importers, is also on the list, which will be published on Monday.

The other major oil producing countries are expected to ramp up production to try and compensate for Iran's anticipated decline in output. But in doing so, they run the risk of hampering their ability to react to any future crises.

Saudi Arabia, the world's largest exporter, has claimed that it can respond to the Iranian shortfall, but some market players are wondering whether the kingdom is exhausting its capacities.

The US, which is in the process of becoming the world's leading producer thanks to its shale oil operations, could meet part of the demand, but lacks export capacity.

Copyright Mettis Link News