Oil prices surge to six-month high as US gets tough on Iran embargo | Business

Oil prices surged to their highest level in six months on global commodity markets after the US said it would take a harder line against countries that breach its oil embargo on Iran.

Brent crude, which provides the benchmark for global oil prices, hit $74.70 a barrel on Tuesday morning while the lighter grade US West Texas intermediate rose to $66.31. The price of both slipped slightly later in the day.

Brent crude prices

In January the price of a barrel of Brent crude stood at just over $50, but has risen steadily ever since, mostly in response to growing concerns about the civil war in Libya.

Washington’s move to tighten sanctions against Iran came as a surprise to most analysts and traders, though the daily rise of less than 1% appeared to show that many accepted a promise by Saudi Arabia to increase output to stabilise prices.

Nevertheless shares in airlines fell and the value of oil producers Shell and BP rose as investors reacted to the prospect of oil prices increasing over the next few months.

US officials said the Trump administration would not renew any of the sanctions waivers granted to a handful of countries, including China, India, Turkey, Japan and South Korea, when the waivers expire on 2 May.

“Today I am announcing that we will no longer grant any exemptions,” Mike Pompeo, the secretary of state, said. “We’re going to zero. We will continue to enforce sanctions and monitor compliance. Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits.”

Neither Pompeo nor senior state department officials would say whether sanctions would be immediately imposed on the affected countries on 3 May, if oil purchases continued.

Some analysts were sceptical that prices would plateau, and higher prices would feed into domestic inflation in the UK and other oil-importing countries.

“The Saudis aren’t rushing to fill what could be a substantial supply gap in the market,” said John Kilduff, a partner at New York-based Again Capital. “The market has gotten tight globally over the course of the last several months, primarily because of the efforts of Saudi Arabia.”

Before the reimposition of sanctions last year, Iran was the fourth-largest producer in the Organization of the Petroleum Exporting Countries (Opec) at around 3m barrels a day, but April exports have shrunk to below 1m barrels a day, according to tanker data and industry sources.

China, Iran’s largest customer with imports of about 585,400 barrels of crude oil last year, formally complained to Washington over the move, which a Chinese foreign ministry spokesman said “will contribute to volatility in the Middle East and in the international energy market”.

The row dates back to May last year when Donald Trump withdrew from the 2015 multilateral nuclear deal with Iran, the Joint Comprehensive Plan of Action (JCPOA), and threatened US sanctions against any international companies that continued to do business with Iran.

Trump administration officials said the waivers, originally granted to eight countries, were motivated by a desire to avoid a spike in oil prices in a tight market for production. They said the waivers were being allowed to end because there was now greater supply.

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It is unclear whether the US will be able to persuade Iran’s remaining customers to stop buying its oil. Industry analysts have said they expect India to comply after the country’s general elections.

The Chinese and Turkish governments have both expressed irritation at being told whose oil they are allowed to buy. Both countries are involved in complex disputes with the US, in which Iranian oil could be a bargaining counter.

“China has the capacity to ignore the sanctions if it wants to,” Jarrett Blanc, the former state department coordinator for JCPOA implementation, said. “If they want to continue to buy Iranian oil it has ways to structure the transaction in a way it doesn’t matter if the US sanctions it.”

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