Oil Prices Hit Four-year High Amid Iran Sanction Fears

- April 26th, 2018

Oil prices surpassed US$75 a barrel earlier this week on fears that the US will pull out of the multi-nation Iran nuclear deal.

Oil prices briefly surpassed US$75 a barrel earlier this week on the back of fears that the US will pull out of the multi-nation Iran nuclear deal and levy heavy sanctions against the Middle Eastern country.

US President Donald Trump has been very vocal about his displeasure with the current 2015 deal, which has lifted trading sanctions and implemented regulatory safeguards on Iran’s nuclear capabilities.

The American president’s tough stance has garnered criticism from several world leaders, and has pushed oil prices to a four-year high. The geopolitical tension has prompted analysts to speculate that oil could easily exceed US$80 if Trump refuses to sign the nuclear deal by May 12.

“We think at least 250,000 to 350,000 barrels of Iranian crude (a day) could be at risk of disruption if sanctions are brought back into place,” said Ehsan Khoman, a strategist at financial group MUFG.

Iran is currently the third-largest oil-producing country, only trailing behind Saudi Arabia and Iraq, all members of the Organization of the Petroleum Exporting Countries (OPEC). Restricting the flow of oil from the third-largest producer will no doubt have a widespread effect despite the fact that America has amped up its oil production in the last year.

According to figures released by OPEC in March, Iran produces roughly 3.8 million barrels of oil per day. Losing that much crude on the world market while OPEC countries and Russia continue to restrict output will leave a severe supply shortage globally. All this while demand in Asia has reached an all-time high, prompting the opening of new refineries in Vietnam and China.

While the American leader has slightly over two weeks to make his final decision, the uncertainty has already caused oil prices to spike; they are currently 13 percent higher than they have been over the last three years. The shock is already being felt at the pumps, with prices hitting US$2.79 a gallon.

On Thursday (April 26), Brent crude futures gained 74 cents to settle at US$74.74, while US West Texas Intermediate crude was up 14 cents to US$68.19.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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