The Trump administration will resume placing sanctions on nations that purchase oil from Iran effective May 2.
It’s an attempt to impact Iran’s money making abilities by significantly cutting the oil it wants to export.
China and other Asian nations are some of Iran’s biggest importers of oil.
Globally, oil prices bounced to six-month highs on this news.
Oil soared by 3%, with Brent Crude at $74.50 a barrel, WTI at $65.70 a barrel. According to a White House statement, the move “is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”
Some countries, including Italy, Greece and Taiwan, stopped buying Iranian oil in November, when the U.S. made its first attempt to punish Iran’s customers.
Yet, Asian customers still buy more Iranian oil than those in any other region. China is the world’s biggest importer of Iranian crude oil. According to customs data sourced by Reuters, China’s imports in 2018 totaled 585,400 barrels a day.
China and other countries will now have to find other suppliers if they want to avoid U.S. wrath.
After the U.S. canceled waivers on Iranian oil sanctions, Saudi Oil Minister Khalid al-Falih said the cooperation with other countries would help “to ensure the availability of enough oil supplies for consumers and to ensure global oil markets are not knocked off balance.”
Attending the One Belt OneRoadsummit in China on April 27, Vladimir Putin said Russia was ready to replace Iranian oil supplies to China.
Russia is currently China’s top oil supplier, exporting 1.26 million barrels a day, followed by Saudi Arabia, whose exports have fallen 7.7% over the last year.
Last year the Trump Administration re-imposed sanctions on Iran but granted waivers to China, India, South Korea, Japan, Taiwan, Italy, Turkey and Greece, allowing them to buy Iranian crude and condensate over the last six months.
Even so, Iran’s crude oil exports fell to 1.4 million barrels a day in March from almost 2.7 million in 2017.
“America has made a bad mistake by politicizing oil and using it as a weapon in the fragile state of the market,” Iranian Oil Minister Bijan Zanganeh said on April 25
While the move will deprive Iran of revenue, its biggest customer China, will suffer from rising prices.
“With many sectors dependent on energy prices feeling the impacts of higher oil, the domino effect will most likely compound the economic woes of Asian countries that are already experiencing a slowdown,” said Lukman Otunuga, a research analyst at FXTM, an online forex broker based in London, in an interview with CNN.