On May 2nd 2019, U.S. Secretary of State, Mike Pompeo, announced the end of the Iran oil export sanctions waivers. Iran immediately responded setting a 60-days before restarting to increase the uranium enrichment. Waiting for the next OPEC+ meeting on June 30th 2019, what are the most important geopolitical consequences of the Trump’s Administration decision?
Firstly, it is important to analyse the possible countermoves that the Russian Federation could implement, after having become the real balance needle in the oil market, because of the victory in the Syrian war. In order to do it, a step back must be taken. On November 30th 2016, the OPEC+ Group reduced its output by approximately 1,800,000 b/d with the aim of increasing barrel prices at that time under $50/b. This deal lasted till June 2018, achieving quite positive results in behalf of the producers. In particular, OPEC decided to cut the production by 1,200,000 b/d, fixing its extractive ceiling to 32,500,000 b/d, while the non-OPEC producers – led by Russia – slashed their output by 558,000 b/d. The implementation of this policy by the OPEC+ Group marked the end of the previous OPEC strategy, which were strongly carried on by Saudi Arabia and its Gulf allies from November 30th 2014. In particular, it consisted in flooding the oil market in order to drop barrel prices thus expelling high cost producers and putting into financial straits countries with a high break-even-price such as Iran, which in those times was under the prior U.S. sanction regime (Obama Presidency) and the EU oil embargo. The entrance of the Russian Federation into the Syrian war on September 30th 2015 in support of President Bashar al-Assad changed the destiny of the conflict and brought about the November 2016 OPEC+ deal as mentioned above, which excluded Iran from the cuts due to an explicit political choice imposed by the Kremlin over the Organization of the Exporting Countries. For these reasons, it is hard to imagine that Russia – which fixed its State budget balance at $40/b and has been currently making high profits – will also abandon Iran to its destiny, by not supporting its close ally in the region and in the Syrian war too. On the contrary, it is more probable that Russia will help Iran in finding some middlemen to export its crude. Taking into account the latest OPEC+ deal signed on December 7th 2018 (-1,200,000 b/d), which will be in place at least till June 30th 2019, Vladimir Putin said that the market will eventually avoid the deficit of Iranian oil and that Iran will still be able to sell it.
Secondly, the impression is that China, which is the world Iranian crude purchaser leader, is not disposed to comply with the latest U.S. oil sanctions over Iran. “China’s cooperation with Iran is open, transparent, reasonable and legitimate, and should be respected”, Foreign Ministry spokesperson, Geng Shuang, stated on April 21st 2019. According to the statistics published by the Chinese General Administration of Customs, the country imported the record high of 10,640,000 b/d in April 2019. At the same time, China’s crude oil imports from Iran surged to 800,000 b/d, which is the highest level since August 2019. Is Trump ready to ruin the chances of a trade deal with China? In accordance with the Il Sole 24 Ore, on May 7th and 8th 2019, China government sent a clear message to the White House, by not participating to the U.S. competitive bidding. The consequence was that the 10 year U.S. T-bond interest reached 2,479% in comparison with the foreseen 2,46% (the highest surge since August 2016).
Apart from the weight of this last aspect, the impression is that Israeli Prime Minister, Benjamin Netanyahu, put a lot of pressure over Pompeo during their last meeting held on March 20th 2019 in Jerusalem, both over the end of the Iran sanction waivers and over Israeli Sovereignty of Golan Heights too. However, Israeli’s and U.S.’s interests do not always coincide. Trump must take into account that an Israeli and Saudi attack towards Iran would also mean an aggression over the so called Chinese Belt and Road Initiative, of which Iran (as Syria) is a fundamental hub.
Last, but not least, someone should explain to the EU that, unlike the United States of America, the European nations have significant economic interests to lose in Iran.