Well, Donald Trump has succeeded in crippling Iran’s oil industry and based on some of the chatter coming out of the Oil & Money conference in London, traders are a bit surprised at just how determined the administration is to lay waste to the Iranian economy.
Take Trafigura CEO Jeremy Weir, for instance, who says it’s possible that some 2 million b/d of Iranian crude could disappear from the market. That’s in stark contrast to initial expectations of just 500k b/d.
Iranian output has plunged over the past several months following Trump’s decision to pull the U.S. out of the nuclear deal:
To be sure, consensus is starting to catch up to the reality of Trump’s irrational foreign policy. Weir noted Tuesday that folks have now generally accepted the idea that at least 1 million b/d are likely at risk.
As far as the special purpose vehicle proposed by Europe, China and Russia designed to facilitate transactions with Iran in spite of Washington’s efforts to squeeze Tehran, Weir says it isn’t likely to work.
Executives from Vitol and Gunvor generally agree, noting that folks will be wary of crossing Trump and thus predisposed to “strict compliance” with U.S. sanctions. “They’ll be enforced to the limit”, Gunvor CEO Torbjorn Tornqvist said.
As ever, this is a delicate balancing act for the U.S. President. The harsher he is on Iran, the more supply jitters in the market and the more geopolitical risk premium in crude. Higher oil prices lead to higher prices at the pump for U.S. consumers. That, in turn, threatens to eat away at the savings that accrue to Americans from the tax cuts.
The contradiction inherent in that setup is behind Trump’s never-ending quest to compel the Saudis to engineer a selloff in crude following the recent run up in prices. Trump’s efforts to dictate the decision calculus for OPEC+ have met with varying degrees of success, but recently, there’s been some pushback.
As to whether Trump will resort to tapping the SPR, the traders gathered this week in London think it’s unlikely for the simple reason that it wouldn’t be all that effective. According to Alex Beard, CEO of oil and gas at Glencore, such a decision would impact prices by just $5.