Unavoidable disagreement

Thursday, 2019-04-25 13:39:59
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Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran, July 25, 2005. (Photo: Reuters)
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NDO - The world oil market reacted immediately after the decision of US President Donald Trump to end exemptions from sanctions for countries still buying oil from Iran. The European Union (EU) and many countries are concerned about the negative effects of this decision on the stability of the Middle East, despite US allies' commitment to ensure sufficient supply.

In order to cut Iranian exports to zero to put pressure on Tehran's nuclear and missile programme, US President Trump has decided to terminate exemptions from sanctions for all eight countries and territories that are still buying from Iran. Notably, this list includes oil-consuming customers such as China, Japan, the Republic of Korea, India, Taiwan (China), Turkey, Italy and Greece. Before coming to such decision, the US seemed to have made a careful plan to have its allies' in the Gulf commit to ensuring that the world oil markets would still be well supplied. Immediately after the US decision, the largest oil producer in the Organisation of the Petroleum Exporting Countries (OPEC), Saudi Arabia, announced it would cooperate with oil powers to secure sufficient supply as well as avoid imbalance in the “black gold” market.

Crude oil prices on the world market immediately hit their highest level since November, due to the fear of shortages in oil supplies. The EU criticised the US decision and warned that this move could further weaken the Iran nuclear deal signed in 2015 between Iran and the P5+1 (the permanent members of the United Nations Security Council - the US, the UK, Russia, France, and China - plus Germany), and at the same time undermine the international efforts to prevent Tehran from developing nuclear weapons. The EU has implemented measures to evade US sanctions against Iran, including the Instrument in Support of Trade Exchanges (INSTEX), a special EU payment channel with Iran to facilitate trade transactions without using US dollars. But the new US decision to stop Iran from exporting oil could increase tensions in the region.

Iranian Oil Minister Bijan Zanganeh said the US has made a bad mistake by politicising oil and using it as a weapon. He added that the US will not be able to reduce Iran's oil exports to zero and Iran will work towards breaking the US's sanctions. Tehran warned that it would break oil shipping by sea through the Strait of Hormuz, an important shipping route in the Persian Gulf, if the US tries to strangle Iran's economy, Iran would even close this strategic strait.

Countries with “hot” growth and high demand for oil voiced their concerns over the US decision. China warned that the US decision will increase tensions in the Middle East and the international energy market. India said it would import more from major oil exporters to make up for oil imports from Iran. A group of officials from the Republic of Korea will head to Washington as early as this week for talks with US officials after the US announced plans to end all Iran sanction waivers. Turkey’s Foreign Minister said the country was opposed to Washington’s move to end sanction waivers on Iranian oil sales, adding that the decision would affect many countries.

Iran is building a payment and trade transaction mechanism with each partner to avoid US sanctions. The Islamic country also expressed their tough attitude toward the US moves that stroke directly into the oil sector, which is considered the backbone of the Iranian economy.

Disagreement is unavoidable in the relationship between the US and countries with related interests. The Persian Gulf is again facing the risk of increasing tensions, due to “tit for tat” moves between Iran and the US.