US President Donald J. Trump has said the United States will pull out of a nuclear agreement with Iran and any company dealing with the Islamic republic from November will be denied access to American markets.

“What happens to the oil price will depend on the degree of compliance with US sanctions,” Cyprus Natural Hydrocarbons Company CEO Charles Ellinas told New Europe on July 26, noting that the biggest buyers of Iranian oil are China, India, and the European Union.

“Strangely, even though Europe politically is fighting to uphold the Iran nuclear agreement, despite protection assurances by the EU, it is European companies who are rushing to comply because they do not want to be cut off the American financial and insurance markets – Total is a good example of this,” Ellinas said.

The French energy major announced in May that Total will not be in a position to continue Iran’s South Pars 11 project and will have to unwind all related operations before November 4 unless the company is granted a specific project waiver by US authorities with the support of both French and EU authorities.

“This project waiver should include protection of the Company from any secondary sanction as per US legislation,” Total said.

According to Ellinas, China will certainly not rush to comply with Trump’s new Iran sanctions and India may, again, find ways around the sanctions regime. South Korea and Japan may eventually cut oil imports from Iran, though the size of the reduction and a rough timeframe as for when the governments in Seoul and Tokyo may opt for a cut remains unknown. “Certainly, Iran’s hopes to moderate the impact of sanctions rest with Asian buyers,” he said.

Ellinas estimated, however, that the impact will be that Iranian oil exports will fall, possibly by as much as 0.5 million barrels per day this year, increasing to 1-2 million barrels per day in 2019. “Much of this shortfall could be covered by increased production from Saudi Arabia and US shale oil, and even Russia. But this will reduce global spare capacity and, at a time of low global reserves, prices are likely to rise to over $80 per barrel,” Ellinas said.

“However, if the US takes a really hard line against Iran, which is likely, and is successful in enforcing sanctions more universally and Iranian oil exports fall more sharply, things may become trickier. This would be especially so if the problems in Venezuela continue to worsen and oil production keeps falling even more, and if the situation in Libya gets out of control,” he said.

With spare capacity low, Ellinas noted that it will become very difficult to cover the shortfall and oil prices may spike even further. The agreement between the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries, especially Russia, to boost production would certainly not be sufficient to counterbalance a combined loss of exports from Venezuela and Libya and Iran well beyond 1 million barrels per day, he said.

“However, President Trump is also mindful of any strong impact on US pump prices and may grant waivers to sanctions in order to moderate the impact. That remains to be seen, but there are already indications that there may be some willingness to grant some waivers,” Ellinas said, explaining that Trump’s goal appears to be to curtail Iran’s oil exports and cripple its economy, thereby forcing Tehran to submit to the specifics of a new nuclear deal – not to cause massive shortfalls in the global oil supply and increase in prices.

Meanwhile, on July 23, Trump warned his moderate Iranian counterpart, Hassan Rouhani, to “never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before.”

Trump’s tweet appears to be a response to recent comments from Rouhani that “Iran’s power is a deterrent and we have no fight or war with anybody, but our enemies must understand well that war with Iran will be the mother of all wars.”

Iran’s semi-official Tasnim news agency on July 26 quoted the head of Iran’s powerful Revolutionary Guard Corps, Mohammad Ali Jafari, as saying their forces were ready to implement Iran’s threat to block the strategic Strait of Hormuz  if Iran is denied access to sell its oil due to US pressure as, according to Jafari, no other country in the Persian Gulf region will be allowed to, Reuters reported.

Tasnim also quoted Major-General Qassem Soleimani, who heads Revolutionary Guards elite Quds Force, as saying that Trump should address any threats against Tehran directly to him, and mocked the US president for using bellicose language “that was better suited for nightclubs and gambling halls”.

Iran has threatened on multiple occasions since the 1979 Islamic Revolution threatened to block the Strait of Hormuz in the past, but failed to do so. I doubt it will do it now. “That would too much of a provocation and the US Navy is likely to intervene. Besides most of the oil going through the Strait is Iranian!” Ellinas said.

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