Oil prices fell today (Tuesday) as US sanctions exemptions allow Iran’s biggest customers to keep supplies flowing amid an economic slowdown that may reduce demand.
The international benchmark, Brent crude, was down 28 cents, or 0.4 per cent, at US$72.89 a barrel.
The first deadline of US sanctions in August cut off Iranian businesses from using the dollar and this week’s measures restrict Iran’s oil and gas exports, while also targeting the banking and finance sectors.
But the US granted waivers to the eight main importers of Iranian oil sanctions, allowing them to continue purchases.
The 180-day exemptions were given by Washington to China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey, Iran’s biggest buyers.
The Iranian rial is estimated to have lost over two-thirds of its value since May when Donald Trump announced he was breaching the terms of the 2015 nuclear deal, and Iran’s oil exports since May have fallen from 2.8 million barrels to 1.8 million barrels.
Iran’s oil, shipping and banking industries are expected to take a significant hit from the new sanctions and the weakening rial could plunge further under the measures, which Trump has said are intended to stop what he considers Iran’s support for terror groups in West Asia.
Analyst Jameel Ahmad at futures brokerage FXTM said the “sanctions on Iran have been … priced into the oil markets” and prices would “instead focus more heavily on the global demand outlook because of the ongoing external uncertainties weighing down on economic prospects”.
Ahmad said a possible recession was “more of a risk for oil over the coming months”.
The potential for a trade war between the US and China is also threatening growth.
Oil output from the world’s three largest producers, Russia, the US and Saudi Arabia, is rising.
The three produced more than 33 million barrels per day (bpd) for the first time last month, meeting more than a third of the 100 million bpd of global crude-oil consumption.
In Iran, the authorities face intense corruption, partly from a black market that grew under previous sanctions, amid rising unemployment and inflation, making essentials more expensive.
“The psychological impact of sanctions began months ago,” said Iraj Jamshidi, a Tehran-based journalist.
“The government has been preparing for a drastic cut in oil revenues, for example, by stopping the import of currency intensive luxury goods like cars. In the short-term, rising oil prices should offset the loss in export revenues.”
Iranian citizens are the first to be affected by sanctions. Picture credit: Wikimedia