Oil prices have been steadily rising over the past couple of months thanks to OPEC production cuts, reaching levels not seen since 2018.
While an increasing U.S. shale output has been exerting downward pressure on energy prices, Washington made a move today that has seen prices jump. Oil reached a six-month high today as the U.S. announced plans to end waivers on Iranian oil exports, increasing energy sanctions against the country.
The Trump administration said it would be ending waivers in May that previously allowed eight countries to purchase crude oil from Iran. This move would further restrict oil supplies in what has historically been the fourth-largest OPEC producer.
Prices for London-traded Brent crude jumped as much as 3.2 percent in early Monday, while West Texas Intermediate jumped around 2.9 percent, the highest since October 30th and just prior to when Trump first announced sanctions against Iranian oil exports.
“President Donald J. Trump has decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May. This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue. The United States, Saudi Arabia, and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied. We have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market,” read an official statement from the White House. “The Trump Administration and our allies are determined to sustain and expand the maximum economic pressure campaign against Iran to end the regime’s destabilizing activity threatening the United States, our partners and allies, and security in the Middle East. The President’s decision to eliminate all SREs follows the designation of the Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization, demonstrating the United States commitment to disrupting Iran’s terror network and changing the regime’s malign behavior. We welcome the support of our friends and allies for this effort.”
President Trump withdrew from the Iran nuclear deal last year, calling on buyers to reduce oil imports from the nation. However, the administration gave several countries, mainly China, Turkey, and India, temporary waivers to avoid drastic shocks in prices.
Beijing responded today against the move later on Monday, saying that they “oppose the unilateral sanctions and so-called ‘long-arm jurisdictions’ imposed by the US. Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected.” The move is seen as a potential stumbling block for future negotiations as the two countries continue their ongoing trade talks.
U.S. sanctions against Iran and Venezuela have tightened global oil supply and helped drive oil prices higher in 2019. Markets have also been closely watching the recent chaos in Libya, with country officials warning that output could potentially drop to zero if hostilities in the nation escalate.
All of these factors have come together to help oil prices spike to further highs. At this point, it wouldn’t be surprising if prices edged up higher as these sanctions come into effect early May.