Traders Warn of Oil Price Spike Due to Iranian Sanctions

Oil traders with Mercuria and Trafigura warned Monday that U.S. sanctions on Iran could take two million barrels of crude per day off the market, leading prices to spike as high as $100 per barrel by the end of the year. J.P. Morgan predicted  a slightly smaller supply reduction of 1.5 million bpd and a price rise to $85-90 per barrel. 

In a statement, J.P. Morgan analysts said that "the main driver of this revision is a higher estimate of how much Iranian crude exports might decline due to multi-country respect for US sanctions that should come into effect on November 4th."

The removal of Iranian oil exports from the global supply will be in addition to other market disruptions, like the decline of Venezuela's petroleum industry, the violent disruptions at Libya's oil terminals and the blockade at Exxon's facilities in Nigeria. These existing supply problems have already helped to lift oil to a post-2014 high of nearly $80 per barrel, according to Reuters. 

Trading data shows that South Korea has already halted imports of oil from Iran, and Indian diplomats have been in discussion with their American counterparts about reducing their purchases from the National Iranian Oil Company. The European parties to the Iran nuclear agreement (the Joint Comprehensive Plan of Action, or JCPOA) have hopes that overseas buyers will continue to purchase Tehran's oil, giving it an incentive to remain in compliance with the deal despite U.S. opposition. However, despite this effort, analysts forecast that imports from major Iranian clients like China, India and Japan will fall by about one million barrels per day by November, when U.S. sanctions take effect.

As customers begin to wind down their purchasing, NIOC has begun to store oil on tankers, according to Bloomberg. The growing "floating storage" volumes are a reprise from the last round of sanctions in 2012-2016, which sharply restricted Iranian oil exports and curtailed the activities of Iran's tanker fleet.