Energy Markets

US’ Withdrawal from Iran Nuclear Deal Increases Oil Market Risk

Following the US' withdrawal from the Iran Nuclear Deal, the US has issued additional demands for Iran. As oil prices show instability, Tanner Kenney analyzes the increasing risk the US' moves pose to the oil market.

BY: TANNER KENNEY

Following President Donald Trump’s decision to withdraw the United States from the Joint Comprehensive Plan of Action (JCPOA) – also known as the Iran Nuclear Deal– experts and observers have cited the various risks the Administration has taken prior to and since making the decision to back away from the agreement. From national security threats to human rights concerns and the funding of terrorism to the pursuit a nuclear arsenal, much has been made about the obstacles that must be cleared in order to see success come from the Iranian government’s attempts to re-establish a diplomatic relationship with its American counterparts in addition to the other members of the JCPOA.

However, one aspect of the dialogues that is out of the control of any singular member of the consortium is the price of crude oil throughout the world at any given moment. In violating the agreement with Iran, the United States has thrown a wrench into the gears that drive global oil and gas (O&G) prices by introducing a great deal of uncertainty into the equation on the sides of both supply and demand via economic sanctions. However, the Trump Administration has also doled-out victories to both allies and enemies throughout the world in the form of economic opportunity.

With oil prices slowly approaching $80 per barrel, Saudi Arabia will be able to increase its daily production to simultaneously fill the void left by American producers in Iran whilst accommodating the country’s projected growth in demand. Moreover, should American energy producers see WTI prices fall to the levels seen in the months prior to Trump’s withdrawal from the JCPOA, smaller and mid-sized producers may be squeezed out of the international marketplace by national oil and gas companies like Sinopec in China, Petrobras in Brazil, and Gazprom and Rosneft in Russia.

Furthermore, continued political instability will only serve to benefit international energy producers as smaller American companies will be unable to lower costs to match the pricing schemes of giants and majors, resulting in the closure of wells, delay or termination of exploration, and loss of jobs. All of this is to say nothing of global natural gas (NG) markets, primarily the disruption likely to occur within the United States’ world-leading liquified natural gas (LNG) capabilities.

Due to its high production and transportation costs, LNG is only a viable option when demand is high and transport options are limited (i.e. pipeline access is not yet available or possible), and a captive audience can only be held in-place for so long. This is the perfect opportunity for competitors to American natural gas providers to construct pipelines both to and from Iran – Russia had already agreed to help the nation’s government construct pipelines to India whilst developing additional O&G resources.

Diplomatically, the American withdrawal from the IND further widens the gap of economic cooperation between the United States and all other member-nations. Politically, President Trump’s attempts to maintain course and curry favor with Russia and China have been wholly rejected by swaths of American households and enraged his opponents in Congress. This could not come at a worse time for the Trump Administration as it attempts to repair the damage done to historical allies through his threats to scale-back funding of NATO.

The economic powerhouses of France and Germany – through President Emmanuel Macron and Chancellor Angela Merkel, respectively – have maintained a straight-faced approach to diplomacy with President Trump in his presence, but have chastised his boorish vocabulary railing against the tariffs he has proposed targeted at steel and aluminum producers, which would, undoubtedly, have a great impact on global oil and gas prices. In the U.K., Prime Minister Theresa May has agreed to uphold the deal, but not without asserting the necessity for amendments, while the Brexit drama has further clouded the nation’s future.

In relation to Russia and China, Donald Trump has sent diametrically opposed signals to both nations during his campaign and transition as well as his time in the White House regarding trade imbalances, nuclear energy, and the role of the nation’s military in peacekeeping efforts across the globe. Time after time, President Trump has chastised both governments publicly while simultaneously attempting to “make deals” behind-the-scenes with various agents and agencies, both directly and by proxy. However, no single nation nor the JCPOA members, collectively, were able to sway President Trump to keep America in the agreement.

The importance of the JCPOA cannot be understated, nor can the U.S.’ violation of the accord, itself, especially when considering that North Korea already has nuclear weapons capabilities and the ongoing discussions between the nation, South Korea, and the United States have generated important concessions on all sides of the table. However, this political chaos and diplomatic disarray was to-be expected prior to the election of President Donald Trump – it should come as no surprise that any and all warnings about the potential negative effects of withdrawal from the JCPOA were blatantly ignored.


Tanner Kenney is an energy and media professional with a background in journalism and received his M.S. in Global Affairs, Environment & Energy Policy from NYU’s Center for Global Affairs. Recently, Tanner has focused on the advocacy of sustainable development through renewable energy technologies, transportation efficiency, and inclusive public policy.

Photo Credit: Wall Street Journal

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

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