US Secretary of State Mike Pompeo
US Secretary of State Mike Pompeo speaks during a press conference at the US Department of State in Washington, DC on April 22, 2019. Image Credit: AFP

Abu Dhabi: Oil prices rose by about 3 per cent following the announcement that the US government won’t renew waivers that let countries buy Iranian oil without facing US sanctions. The global benchmark, Brent was trading at $73.77 per barrel, up by 2.50 per cent at 5.10 pm UAE time. West Texas Intermediate was up by 2.47 per cent at $65.58 per barrel. Both commodities touch year highs.

The United States allowed eight countries including China, India, Turkey, Japan, South Korea, Taiwan, Italy and Greece to continue to import oil from Iran despite reimposition of nuclear related sanctions on the country from November last year. The current set of waivers will expire on May 2.

Analysts expect oil markets to tighten following the announcement.

“If Iran oil export hits zero, there will be significant consequences on the oil market and prices. Zero Iran export naturally will have impact on the actual supply in the market at a time when oil supplies are less than usual due to Iran and Venezuela sanctions,” Dr Sara Vakhshouri, President of SVB Energy International told Gulf News.

“This is also happening as summer would approach and US hits the high gasoline peak demand.”

She also added Saudi Arabia, Opec and Russia could cover for Iran oil, but the market will be really tight.

“Prices will increase significantly as there will be not much spare capacity left in the market for any potential additional supply interruption.”

An end to the exemptions would hit Asian buyers hardest.

Iran’s biggest oil customers are China and India, both of which have been lobbying for an extension to the sanction waivers.

In March, China imported 613,000 barrels of oil per day (bpd) from Iran, India imported 258,000 bpd, South Korea 387,000 bpd and Japan 108,000 bpd, according to data compiled by Bloomberg.

In similar comments, Jaafar Al Taie, managing director of Manaar energy group said Saudi Arabia, Iraq and Russia are the potential exporters of oil to India as well as China but the rising oil prices could pose a major challenge to India’s Prime Minister Narendra Modi as the country heads for elections this month.

“Higher oil prices for India is very worrying for Modi and it’s worrying for him to get reelected on the back of providing subsidies and providing support for agricultural community.”

On the positive side, he said Saudi Arabia and Aramco is increasing its investments in India in the refining sector and the new partnership between the two countries could soften the blow of higher oil prices and give certain type of certainly in the supply of oil.

Dr Saade Chami, Group Chief Economist at National Bank of Kuwait also said the drop in Iranian exports could be made up for by excess capacities that exist in other countries such as Saudi Arabia, UAE, Russia and Iraq, among others.

“The expiry of waivers will most likely exacerbate the current supply tightness, possibly by several hundred thousand barrels a day especially in the context of falling crude production in Venezuela and potentially other geopolitical hotspots such as Libya.”