Business risk: Increased oil prices due to lower Iranian production + risk of disruption of Strait of Hormuz that would push oil prices further upwards.
Iranian Revolutionary Guard commandos and missile boats in Great Prophet IX Maneuver in Strait of Hormuz, Persian Gulf. (Source: sayyed shahab-o- din vajedi)
No more waivers. The Trump administration announced that it would not renew any of the waivers for buying Iranian oil. China, Turkey, India, Japan, South Korea, Taiwan, Italy and Greece all had exemptions to purchase Iranian crude. Italy, Greece and Taiwan already stopped buying oil from Iran.
Big oil importers like India will face severe economic costs due to the probable price increases. For India, the problem is exacerbated as the US also put more sanctions on its other top oil supplier, Venezuela. Turkey and China (who buys almost half of all Iranian oil) condemned this move.
Oil prices jumped up. In the already tight market (with sanctions on Venezuela) “international Brent crude oil benchmark rose to more than $74 a barrel on Monday, the highest since November” reported Reuters.
The White House declared that the US, Saudi Arabia and the United Arab Emirates
have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market.
This statement is in contrast to recent actions by the Saudi’s who have cut their production.
A Small opening? The renewed US sanctions have caused already much pressure on Iran. Its oil exports plummeted from 2.8 million barrels a day to 1.3m. The IMF predicts 40% inflation this year. Economic hardship can push the regime to become more accommodating, but at this moment it seems not to budge.
However, there are some signs that it would be open to talking to Washington. Last month, it proposed to exchange prisoners between Washington and Tehran. Tehran seems intent to play on Trump’s vanity. The President has claimed that:
Donald J. Trump is the greatest hostage negotiator that I know of in the history of the United States. 20 hostages, many in impossible circumstances, have been released in last two years. No money was paid.’ Cheif (sic) Hostage Negotiator, USA!
Given how much Trump likes to conclude deals that have no game-changing impact (NAFTA renegotiation, upcoming US-China trade deal) and have zero-impact summits (North Korea), the Iranians might be on the right track here.
Or going hardline in Hormuz? The alternative for the regime could be to completely dig in, provoking ever stricter US sanctions, finally triggering Tehran to take some brash action. This month Iran’s President Hassan Rohani threatened to disrupt traffic through the Strait of Hormuz. Newly appointed Iranian Revolutionary Guards Commander Hossein Salami, whose forces control the Strait of Hormuz, also threatened to close the Strait.
If you’re interested in receiving updates on how political events cause business risk, subscribe to Political Disruption