Irony of Iran sanctions and falling oil prices

NEW DELHI: US sanctions on kicked in from Monday. It exported almost three million barrels of crude oil per day on an average. Iran reacted angrily with air defence drills with its President saying that the nation faces a ‘war situation‘, raising tensions in West Asia. That should have driven up due to concerns over lack of supply. Instead, they fell. The global benchmark Brent crude was down 0.25% at $72.65 per barrel on Monday, Price of oil (Brent) has fallen 16% since it reached a high of $86 last month.

Iranian oil: One reason is that the latest round of sanctions aren’t as harsh as the market expected. The US has granted exceptions to eight countries including big consumers like India and China, which means Iranian oil will keep flowing.

Demand and supply: The fall in prices has been driven by a drop in demand due to a slowdown in the world economy. Investors also fear that trade tensions emanating from the US could reduce global oil demand further. Rising oil output from the US (875 operational oil rigs are the highest level since March 2015) and the top producers like Saudi Arabia and Russia (they have promised oil to meet any shortfall from Iran) has kept prices from rising. The Organization of the Petroleum Exporting Countries (OPEC) boosted oil production in October to its highest level since 2016, led by UAE and Libya.

Meanwhile, US Secretary of State Mike Pompeo, who’s termed the sanctions as the “toughest sanctions” against Iran, deflected questions on whether India and China — among the eight countries granted waiver to import crude oil from Iran — had given firm commitments on reducing their imports, with an ominous sounding statement, saying “Watch what we do. Watch as we‘ve already taken more crude oil off the market than any time in previous history.”
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