Iran Sanctions: How Are They Affecting Oil Prices?

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It is common knowledge that oil prices rise and fall according to changes in supply and demand. Tracking oil supply and demand is fairly straightforward, the more International Energy Agency (IEA) production levels rise the more supply there is in the market, the greater the pressure on oil prices. On the flipside, when demand is higher than supply, oil prices tend to rise. Each country and producer decides how much oil to produce, which is why alliances like the Organization of Petroleum Exporting Countries, or OPEC, can change the price of a barrel of oil by deciding to increase or limit production.

Iran Sanctions
Iran’s refusal to give up its nuclear program has caused controversy and global tensions forcing other nations to put sanctions on Iran and embargoing all Iranian oil. This embargo has kept Iranian oil supply restricted until recently when after years of negotiators from the United States, United Kingdom, France, China, Russia, Germany and European Union found a compromise with Iran that added monitoring to Iran’s nuclear program in exchange for lifting sanctions, including those on oil exports. Immediately after the sanctions were lifted, oil prices plummeted more than 2% amid fears that the energy market would drown in oversupply!

Why Oil Prices Stood Their Ground
Despite the initial fears, Iran’s oil stock was not enough to flood the market. What is more, Iran was far too long out of the oil producing game to be able to compete with high-tech producers like the U.S.Unfortunately for Iran, nuclear talks were unsuccessful causing the U.S. to unleash a fresh wave of sanctions against Iran in early November 2018, targeting its crude oil exports and its shipping and banking sectors.

In general, countries are now supposed to avoid buying Iranian crude, unless they want to incur American wrath. However, the U.S. has granted eight temporary waivers to 8 countries in order to let them wind down their imports over time.

Financial Sanctions
Even with the waivers, Iran’s oil exporting future still seems bleak as it needs to also take into account the financial sanction of Swift payments. In early November 2018, the U.S. confirmed that it would expose Swift to sanctions if it did not cut all ties with Iranian financial institutions – with the exception of payments for food and medicine. This means that Iran won’t be able to get paid for its oil without the payments going through this network, even if countries agree to bypass the U.S. sanctions.

*Sources: Fortune 6:03 AM EST

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