US sanctions on Iran could cause oil prices to spike

CFI us sanctions iran

The following article was written by Reem Aboul Hosn, Research and Market Analyst Officer at Credit Financier Invest (CFI) Ltd.

For the second time, the US-sanctions on Iran took effect on Tuesday which could push oil prices above USD 90 a barrel by the end of the year, analysts have advised.

In the middle of high energy market and fears of an approaching supply jolt, the news comes after the prolonged conflicts between both parties.

The US decision is expected to trigger a downside impact on oil exports in Iran, which is the world’s fifth-largest oil producer.

Alternatively; China will not stop buying Iranian oil, the European Union is urging its companies to continue trading with Tehran despite American threats of sanctions. Even with the cooperative stand of some countries, a significant crisis in terms of lost supplies into the market is foreseen, which triggers higher prices.

Investors are weighing bullish factors that include potential supply disruptions to Iranian crude exports against more bearish indicators, such as a rise in production by the Organization of the Petroleum Exporting Countries (OPEC) and its allied.

In June, Russia, Saudi Arabia and other members of the oil alliance agreed to increase production by up to 1 million barrels per day starting in August.

The move had helped put a cap on oil price rally, with crude futures falling more than 7% since climbing above USD 80 a barrel in May, 2018. The price hike earlier this summer resulted from Trump’s decision to reject an international agreement to curb Iran’s nuclear programme.

The impact of the return of sanctions has ramped up tensions, and will cause high prices, disrupted political systems as the re-imposed sanctions target a range of sectors from metals, automotive sector, food and other goods as well.

Market outlook:

On the New York Mercantile Exchange, West Texas Intermediate futures for September delivery rose to USD 69.58 a barrel, the highest price since June 29.

Brent crude for October was up 1.1%, to USD 74.58 a barrel on London’s Intercontinental Exchange.

Reem AboulHosn | Research and Market Analyst Officer at Credit Financier Invest (CFI) Ltd, previously CFI Markets Ltd

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