Consequences of renewed sanctions on Iranian oil

According to Energy Press; With Donald Trump’s return to the US political arena and global economic challenges, many experts have expressed doubts about his next options, especially regarding oil sanctions against Iran and Venezuela. With tensions increasing in global markets, the path that Trump will take on this issue will be in the spotlight, as his decisions are likely to affect the global economy and the US national budget in an unprecedented way.
Trump’s possible actions in the gas market
In recent days, energy markets have been trying to assess the effects of Donald Trump’s victory in the US elections on oil and gas prices. Although the main estimate of Trump’s policies is focused on reducing prices, the key risk is how the future president will deal with Iran.
According to the “ING economic” report, the possibility of increasing US oil production has increased, and any increase in oil production will also lead to a boost in associated gas production. It is also likely to provide more opportunity for the gas industry to invest in pipeline infrastructure, easing the persistent bottleneck in the U.S. natural gas market, particularly in the Permian region. Investment in natural gas pipeline capacity also creates the potential for stronger crude oil production.
In addition, a Trump presidency is likely to see the lifting of the Biden administration’s moratorium on LNG export project approvals. While this will not change the short- to medium-term outlook for the global LNG market, it will help to address some of the long-term volatility in LNG supply. It should be noted that oil and gas lease issuance on federal lands grew during Trump’s first term, but has slowed under Biden.
Trade instability is another factor that could negatively impact energy prices, particularly in the United States. The potential for increased trade frictions is likely to lead to higher energy prices, especially if energy trade becomes embroiled in any of these tensions. US trade tariffs could lead to retaliatory measures, such as those taken against the US in 2018 on some exports. For example, Chinese oil buyers were reluctant to buy US crude due to the risk and eventual implementation of the tariffs. This caused the WTI-Brent discount to increase from around $3 per barrel to more than $11 per barrel in 2018. A rapid escalation in the trade war with retaliatory tariffs could lead to a rise in WTI-Brent rates.
Also, threats from LNG exports remain. In 2018, China imposed retaliatory tariffs of 10% on US LNG imports, which were increased to 25% in June 2019. This brought US LNG exports to China to zero. However, the current situation, with high demand for LNG, especially in Europe, is favorable for US exports.
Trump and Foreign Policy
Of great importance to energy markets is Trump’s foreign policy and how he manages the Russia-Ukraine war and the Middle East conflict. Trump has said he will end the Russia-Ukraine war, but has not specified how. However, brokering a peace deal would likely remove some of the geopolitical risks in energy markets. This raises the question of whether any peace deal would include lifting some sanctions on Russia.
A scenario in which Europe agrees to increase its dependence on Russian fossil fuels is likely to be difficult to accept. Given that the US oil and gas industry has been a major beneficiary of this move, it would be in the US’s interest for Europe to continue to reduce its dependence on Russian fossil fuels.
Another geopolitical factor that continues to influence energy markets is West Asia. While Trump supports Israel, he has stated that he is seeking to bring peace to the region. While this will not be easy, any de-escalation would remove a significant amount of risk from the oil and gas market.