Oil prices remained near three and a half year highs on May 11 as the United States plans to reintroduce sanctions against Iran after the Administration of US President Donald J. Trump abandoned a landmark deal that sought to curb Iran’s nuclear program.

Iran pumps about 4% of the world’s oil. However, there is no shortage of oil, as the market remains balanced with Saudi Arabia and Russia having led efforts to curb oil supply to prop up prices. “I think you’re going to see some quite significant volatility in oil prices and that will be dependent upon what extent their confidence that the Iranian arrangement would be maintained and you could end up with some spikes occurring, but I suspect the Saudis will act to try to increase supply and to maintain the levels if at all possible,” Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe by phone on May 11. “But, of course, they are in contradiction here because the Americans have been increasing supply anyway and show no signs of wishing to weaken it at all, yet the Saudis still wish to maintain the price at a reasonable level. But anything that can put pain on the Iranians, the Saudis will do,” Urquhart Stewart added.

He said Saudi Arabia, Israel and the United States have become unusual allies, at least temporarily. “The Saudis and the Israelis and the Americans – if you wrote this in a novel nobody would believe you, but we find ourselves in this weird position that the European Union is stuck in the middle, Russia is an ally to Iran but is an unreliable ally and the Saudis and the Israelis are very unnatural bedfellows,” Urquhart Stewart said, adding that their suspicion at Iran runs very deep indeed.

He said Iran is unreliable ally to Russia but it’s in Russia’s interest to try and make sure that the price is sustained. “It’s in Russia’s interest if Iran did go along with Europe on some sort of maintenance of the agreement for the time being but frankly this could go either way and then, of course, the Europeans would have to make sure they stand firm against American actions against their own companies breaching any of the black-listing arrangements and that’s by no means certain,” Urquhart Stewart said.

France has condemned as “unacceptable” the US move to re-impose sanctions on all companies trading with Iran. BBC quoted French Foreign Minister Jean-Yves Le Drian as saying European companies should not have to pay for the US decision. However, analysts question the effectiveness of any EU shielding legislation and point to the inevitability of a chill on all international transactions that would flow from US sanctions. At this point it’s just speculative.

Observers also wonder what impact the French-led EU initiative might have on ongoing US-EU negotiations on tariffs regarding steel and aluminum, the application of which the Trump Administration has temporarily suspended in regards to the European Union.

Basically, with this number of issues at play – energy markets, tariff policies, geopolitics and the legal complexity of US sanctions against Iran – quite some time will be required to frame the situation clearly.

“The EU is showing very little backbone in this politically, but I think is unlikely to take leadership and will make noises, but I suspect may well bend when some of its companies come under threat from America, let’s say Airbus orders to Iran and things like that,” Urquhart Stewart said. “Also, politically they’re not strongly united. They’ll make noises together but the actions, I suspect, will be very limited indeed,” he added.

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