With crude prices trading around 10-month highs and limited spare production capacity worldwide, the United States may offer Iran’s biggest customers waivers from the oil sanctions, which take effect June 28.
Iran is the world’s fifth largest oil exporter and the second-biggest producer in OPEC after Saudi Arabia.
It’s biggest customers, including China, Japan and India have become tangled up in US-led sanctions aimed at curbing Iran’s nuclear ambitions, but which have also revived fears of a global recession.
High crude prices present a major challenge for politicians seeking re-election, including for US President Barack Obama, who may face a backlash from voters paying a US gasoline price that is climbing toward record levels of $4 a gallon.
Obama, however, can grant waivers if doing so would be deemed in the nation’s interest.
“With oil inventories and spare OPEC production capacity running low, consumers don’t have much buffer against additional disruptions in supply,” said Trevor Houser, a partner at Rhodium Group and a former State Department adviser.
On Wednesday, news emerged that the US government recently forced Dubai-based Noor Islamic Bank to stop channeling Iranian oil money, cutting off another of Iran’s links to the international banking system.
The world’s biggest electronic bank clearing system, SWIFT, is also preparing to block Iran’s central bank from using its network to transfer funds. In a sign of Iran’s difficulties, traders said Tehran was trying to sell about 200,000 tons of crude oil from a supertanker floating off Singapore.
The EIA report, which looked at global oil output and prices over the last two months since Obama signed the sanctions into law, said oil supplies have become increasingly tight, largely due to the looming embargo and string of production outages in Yemen, Syria, South Sudan, and the North Sea.
The report said global spare crude production capacity was “quite modest” by historical standards, and estimated a global supply gap of 1.6 million barrels per day if Iranian oil was completely taken out of the picture. Iran has threatened to retaliate against the sanctions by closing the Strait of Hormuz, a waterway which carries nearly 20 percent of the global oil trade.
Iran insists its nuclear program is for peaceful purposes but the West’s mistrust runs deep. Western diplomats say the UN nuclear watchdog was concerned over “activities” that might be taking place at Iran’s Parchin military facility.
It was unclear what kind of activities the International Atomic Energy Agency (IAEA) suspected. Diplomats said the agency was monitoring the site via satellite images.
With Israel hinting it could launch a pre-emptive strike on an Iranian nuclear facility, a pro-Iranian group, Hezbollah, warned such an attack would set the Middle East ablaze and possibly drag the United States into the conflict.
“America knows that if there is a war on Iran, this means that the whole region will be set alight, with no limit to the fires,” Hezbollah deputy Sheikh Naim Qassem told Reuters. The United States and Israel have not ruled out a military strike on Iran to halt its nuclear program.
