The shortfall in the global oil pool as a result of this potential fall in supply from Iran, is likely to be met by increased production from Saudi Arabia.
On Monday, oil prices surged to $74 a barrel, their highest levels since November 2018, following a move by the United States to further clampdown on Iranian oil exports, which in turn will tighten the global oil pool.
The United States is expected to spell out to buyers of Iranian oil that they will need to curtail their oil purchases from Iran, said a source familiar with the situation.
“This does bring a lot more uncertainty in terms of global supplies,” said Olivier Jakob, an analyst at Petromatrix. “It is a bullish surprise for the market.”
With the news reaching the market, Brent crude, the global benchmark, rose by 3.3% to $74.31 a barrel – its highest since Nov. 1, 2018.
U.S. West Texas Intermediate crude also rose by 2.9% to $65.87 – its highest since Oct. 31, 2018.
In November 2018, following U.S. President Donald Trump’s unilateral withdrawal from the landmark 2015 nuclear accord between Iran and six world powers, the United States reimposed sanctions Iran.
However, the U.S. granted waivers to eight buyers of Iranian oil, including China, Japan, South Korea, Taiwan, India, Italy, Turkey, and Greece.
The U.S. Secretary of State Mike Pompeo is likely to make an announcement later today.
Tightening Iranian oil exports is likely to further squeeze global oil supplies and will hit hard economies of Washington’s Asian allies, especially India.
Iran’s biggest oil customers are China and India, both of which have been lobbying for an extension to the sanction waivers. While China has been aggressive towards the United States, in stark contrast India has played a positively role in supporting U.S. interests.
Incidentally, the prospects of reduced Iranian supply brought a cautious reaction from Saudi Arabia, a key U.S. ally and a top OPEC exporter. Saudi Arabia has been the driving force behind the OPEC-led supply-cuts.
As per a source familiar with Saudi thinking, while the Kingdom is willing to compensate for any potential loss of crude supply, it will move on the matter only after assessing the impact on the market before raising its output.
Analysts at JBC Energy in Vienna see a Saudi supply boost as likely.
“It is now almost certain that additional volumes from Saudi Arabia from May onwards will come back into the market,” reads a JBC report.