Against bearish factors such as ramp-up in production by Organisation of Petroleum Exporting Countries (OPEC) and its allied partners; investors will be pondering more on the bullish factor that might lead to an increase in Brent crude price, the benchmark for Nigeria’s crude oil as US President Donald Trump re-imposes sanctions on Iran the world’s fifth-largest oil producer.
The sanction which will begin to take effect today is expected to disrupt Iran’s oil production.
The last time the OPEC member country was sanctioned more than half of its current export of about 2.4 million was removed from the market. Emmanuel Afimia, energy partner at Emmanuel Afimia Consulting said the US sanctions on Iran will lead to a fall in oil supply in the global market, which will in turn lead to increase in price of crude oil.
“I hope Iran would accept Trump’s request for renegotiation of the nuclear deal in order to save its economy and citizens,” Afimia told BusinessDay.
Luqman Agboola, head of research at Sofidam Capital Limited said the recent turn of event will lead to an increase in oil price as Trump is currently showing the rest of the world that that the present US government is not a country that honours previous administration agreement.
The US has ordered all other countries to halt imports of Iranian oil by early November or face punitive measures. In a statement on Sunday Secretary of State Mike Pompeo said the White House will detail implementation of the measures.
The US sanction which was first announced on May 8 will come in phases after the 90-day wind down expires on August 6, while the second and bigger phase, targeting Iran’s energy industry, will take effect on November 5.
The supposed “wind downs periods” are basically grace periods given by the US government to companies, both American and foreign, to wrap up their business, terminate operations, and pull their money out of Iran.
Since US President Donald Trump withdrew from the agreement in May, businesses that were testing the waters in Iran have largely fled, fearing instability and a cutoff from the US financial system
Companies including GE and Honeywell were among the US companies operating in Iran that had to pull back their investments because of the sanctions.
Major foreign companies such as the French energy giant Total, and the Danish shipping line Maersk also started operations in Iran after the 2015 nuclear deal. But because of their presence in the US market, they too had to withdraw after Trump’s announcement, or else, they would have risked getting penalised by the US government as well.
“That’s the negative effect of being adamant. Iran won’t have a choice in the long run,” Afimia told BusinessDay by mail.
Mike Pompeo, a veteran critic of Iran whose appointment as secretary of state has boosted President Trump’s determination to punish the country, said the new sanctions would be “rigorously enforced.”
The following sanctions will be re-imposed according to a US Treasury Department official statement , “Sanctions on the purchase or acquisition of US dollar bank notes by the Government of Iran; sanctions on Iran’s trade in gold or precious metals; sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes.”
“Sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial; sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; sanctions on Iran’s automotive sector,” US Treasury Department official statement said.
Cash strapped and desperate, Tehran has reportedly sought to withdraw funds parked overseas with limited success.
According to The Wall Street Journal, Iran may lose access to $400 million of its money in a German account if Berlin proceeds with a new financial rule that would bar transactions adversely affecting its relationship with fellow central banks and institutions in particular, the Federal Reserve and Treasury Department.
Iran did receive five French-made turboprop planes over the weekend for its domestic commercial fleet, marking what may be Tehran’s last tangible benefit from its nuclear agreement with world powers as the 2015 accord brokered with France, Britain, Germany, Russia, China, and the US had exchanged caps on Iran’s nuclear work for international sanctions relief.
Iranian officials say they may pull out of the agreement themselves, or begin enriching uranium anew, unless Europe can guarantee it the benefits it was promised under the nuclear deal. To that end, talks between Tehran and European powers have stalled.
However, the European Union (EU) issued a joint statement on Monday, promising to protect its business interests against the impact of new U.S. sanctions against Iran.
“We deeply regret the re-imposition of sanctions by the U.S., due to the latter’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA),” the foreign ministers of the EU, Germany, France and United Kingdom said in the joint statement on Monday.
The EU also restated its commitment to upholding the Iran nuclear deal (JCPOA), calling the 2015 brokered agreement “a matter of international security”.
According to data obtained from the Bloomberg terminal, Brent crude, the international benchmark was trading around 1.35 percent higher at $74.20 on Monday, while West Texas Intermediate futures rose 1.35 percent to trade at $69.73.
“The rallying oil price should have an immediate positive effect on Nigeria’s economy, But corruption is always the elephant in the room,”Abayomi Fawehinmi, an energy analyst in a Lagos based oil firm told BusinessDay.
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