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Did you know? The sanctions on Iran

Did you know, that since the sanctions were imposed on Iran the price of oil has gone in the opposite direction of what the market expected?

In May 2018 U.S. president Trump announced that the U.S. would pull out of the Iran nuclear agreement and implement sanctions on Iran by November 4th. This would, amongst other, seek to stop the export of crude oil from Iran. The market reacted already before the sanctions were implemented by cutting imports from Iran and the crude oil price increased. Saudi Arabia, Russia and Iraq quickly announced that they would try to offset the lost barrels of oil from Iran. Thus, production and exports increased, especially in Russia. See the graphs below, to gain an understanding of the change in export and production in Iran, Iraq, Saudi Arabia and Russia


As the implementation date as well as the U.S. midterm elections came closer, the U.S. president faced a dilemma. As lower oil prices and impending sanctions against Iran would logically pull in opposite direction, temporary waivers with various terms were granted to aid 8 large Iranian oil buyers. Thus, oil prices retraced heavily. Likely because markets no longer feared supply shortage since the missing Iranian oil barrels are no longer …. missing…. at least for some months (waivers were given for 180 days).

Saudi Arabia, Russia and Iraq increased the production of crude oil. Due to the waivers however, the sanctions did not cause nearly as many barrels to be taken of the market as first expected. Along with outlook for lower demand growth pace, this contributed to the price drop.

At the same time, U.S. production increased heavily and a lot of refineries in the U.S. and the rest of the world decreased refinery runs.  This means that the U.S. has been importing less crude oil and thus increased the downwards pressure on oil. The graph below illustrates a drop in U.S. refinery runs and the drop in the oil price. Be aware of the refinery maintenance season that has a big, but short-lived influence on the refinery capacity utilization.

We can thus conclude, that the US political agenda have had quite the opposite effect on the market than expected, causing prices to drop.