Looming new US sanctions on Iran are likely to disrupt oil trade by spooking potential buyers while supplies to Europe will most likely remain intact. US President Donald Trump took aim at the 2015 nuclear deal, vowing to end US participation in the landmark agreement unless Congress and US allies are able to deliver on sanctions targeting Iran’s missile program, its support for terrorism and any future nuclear activities.
Any big increase in US sanctions will basically leave the oil market where it was in around 2010 when the White House had a tough stance on Tehran while the European Union was still allowing trade before introducing sanctions in 2012. Brussels eased sanctions last year as part of the efforts around the nuclear deal, paving the way for Iran to kick start its oil trade again and attract foreign direct investment.
“If the US does decertify the nuclear deal, and raises the tension, then inevitably some people will say, well, maybe that is a business that I shouldn’t be involved in,” said Alex Beard, Glencore’s global head of oil. He added that doing oil business with Iran was already complex enough without any new US sanctions due to a lack of dollar clearing. Moreover, the global banking system is sensitive to US opinion of dealing with Iran.
Glencore and Vitol, the world’s No. 2 and No.1 oil trading houses, restarted their business with Iran in 2016. The CEO of Vitol, Ian Taylor, commented that he expected the dealings with Iran to become more complex, although a small number of financial institutions would still facilitate trade. “If Trump decides not to certify … it will have some impact but I don’t think the Europeans will go with him so probably the impact will be limited,” he said.