Saudi Arabia says it will step in to stabilize world oil markets if President Donald Trump’s administration’s decision to impose sanctions on Iran’s energy sector results in significant cuts to global supply.
Trump will pull the U.S. out of the 2015 Iran nuclear deal and reinstate economic sanctions on Tehran that had been lifted as part of the agreement, he announced Tuesday.
Among the penalties will be sanctions on transactions with the National Iranian Oil Company (NIOC) and Iran’s port operators, according to a Treasury Department document accompanying Trump’s announcement. The sanctions, which will snap into place after a 180-day wind-down period, could disrupt up to 1 million barrels a day of Iranian crude — a quarter of its total output.
Almost immediately after Trump’s announcement, Saudi officials began to signal their willingness to make up for any shortfall in global oil supply caused by U.S. restrictions. Riyadh remains “committed to supporting the stability of oil markets” and will, along with other major oil producers, help “mitigate the impact of any potential supply shortages,” Saudi state media quoted the Energy Ministry as saying, according to Bloomberg.
Iran has recently been producing just under 4 million barrels of crude oil a day — roughly three percent of global output. Most of its oil exports go to China and other Asian countries, along with significant customers throughout Europe.
Potential increases in oil prices were a concern when weighing new sanction on Iran, Trump administration officials have said. The White House sought assurances from Saudi Arabia and other oil producers they would fill gaps left by a reduction in Iranian crude exports, according to Treasury Secretary Steven Mnuchin.
“Without commenting on specifics, we’ve had various conversations with various parties … (who) would be willing to offset this,” Mnuchin told reporters Tuesday. “My expectation is not that oil prices will go higher. I think we’re careful in wanting to make sure that we balance supply and demand.”
Further guidance from the White House about the severity of new sanctions could cause oil futures to climb higher. The price of light — sweet crude oil climbed above $70 on Wednesday — but most industry analysts are not expecting global prices to spike the way they did when multilateral sanctions were imposed on Iran before the 2015 nuclear deal.
“The Iranian oil sanctions during the Obama era reduced Iranian crude oil production by 1 million barrels per day,” Chris Lafakis, an energy economist for Moody’s Analytics, said in a statement, according to Bloomberg. “The U.S. sanctions announced today are expected to result in a decline in Iranian crude oil production of 400,000 barrels per day. What made the multilateral sanctions enforced during the Obama era so effective was precisely the fact that they were multilateral, whereas President Trump’s sanctions are not.”
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