Not unexpectedly, oil prices have risen after President Trump announced he had pulled the US out of the Iran nuclear deal. The main term of the nuclear deal, agreed in 2015, was that Iran would cut its uranium stockpile by 98% to 300Kg. It would also restrict its stockpile’s level of enrichment to 3.67%. Weapons-grade uranium is enriched to 90%.
Middle East Conflict Would Benefit Nobody
In return, the crippling economic sanctions imposed on Iran at that time were lifted. By pulling out of the Iran nuclear deal, and stating that US sanctions would be reimposed, the US is practically forcing Iran to recommence building a nuclear arsenal with the prospect of a war that neither side can win. It also sure to affect the flow of crude oil out of Iran. Because of this, oil prices have been increasing as investors fear the worst.
Such a conflict is almost sure to set the Middle East alight. There is no guarantee that the US will have the support of the EU or UK in this. Russia and China may also become involved, and it is a dangerous game that Trump is playing. Without, many believe, fully understanding the potential repercussions of such an action.
Global Supply of Oil May Drop by 800,000 BPD
Iran is not Canada or Mexico, and this is not the same as a trade war with China. It is taking on an Islamic state that has not feared war in the past and will certainly have a great deal of support should the US reimpose sanctions. Not only that but the global supply of crude oil may be slashed by up to 800,000 barrels per day (BPD). Hence the rise in oil prices.
The deal is officially referred to as the Joint Comprehensive Plan of Action. All other signatories have stated that they will stay with it. Iran is not Iraq. Hassan Rouhani is one of the more moderate Middle Eastern presidents but is unlikely to respond well to this threat from the US.
Rise in Oil Prices Just the Start?
That said, The US believes that it is doing the correct thing and President Trump seems set on ensuring that Iran is not being given economic benefits while also continuing to develop its nuclear program. The UK, EU, Russia, and China say Iran is sticking to the terms of the agreement, but the US seems unsure. The result is a rise in oil prices. This may be a knee-jerk reaction, or it may be a sign of things to come regarding the stability of oil supplies should sanctions be reapplied to Iran.
Potential Economic Effects of Iran Nuclear Deal Failing
The next few days and weeks will give us a better idea of the economic effects of this action. The US will first have to announce the economic sanctions to be applied to Iran. It will also apply sanctions to countries that do not follow its lead to the other signatories to the original Iran nuclear deal: UK, EU, Russia, and China. The economic impact is unknown, but it is sure to affect share prices and oil prices worldwide. We can only wait for the effects of this action by President Trump to materialize on friends and foe alike!
