Trump scrapping Iran deal will cause gas, oil price spikes

The president is playing with constituent fire, one analyst said, given the potential for a 50-cent spike in gas prices that could follow a decision not to extend a waiver on sanctions for Iran.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  Jan. 11, 2018 at 9:27 AM
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Jan. 11 (UPI) -- Gas prices might get to $3 per gallon and the current rally in oil prices will kick into overdrive if Trump denies a waiver on Iranian sanctions, experts said.

U.S. President Donald Trump decides Friday whether or not to waive oil-related sanctions for Iran, according to the terms of the U.N.-backed agreement that extended relief to Iran in exchange for commitments to scale back its nuclear research program.

Such a decision would jeopardize the nuclear arrangement, supported by the five permanent members of the U.N. Security Council, plus Germany. Under the multilateral nuclear deal, formally the Joint Comprehensive Plan of Action, the president decides whether to go against the principles of the agreement and reinstate sanctions, or issue another waiver, as he did last year.

The start of 2018 saw political demonstrations break out in Iran over rising prices in an economy where inflation is close to 10 percent. Joe McMonigle, a senior energy analyst at Hedgeye Risk Management, said his firm sees that as all the reason Trump needs to imperil a deal he's long vowed to rip apart.

"We think 2018 marks the start of U.S. sanctions on Iran oil sales and likely the end of the Iran nuclear deal, a catalyst for U.S. sanctions on 1 million barrels per day of Iran crude exports," he said in comments emailed to UPI.

The sanctions on Iranian oil exports in the European market would come at a time when traders are watching a shrinking gap between supply and demand. When the balance was tilted heavily toward the supply side two years ago, markets had a lot of breathing room for unrest. With the gap indicating a market in near balance, there's no room for geopolitical risk.

Patrick DeHaan, a senior analyst at GasBuddy, said to expect a sharp spike in crude oil prices if Hedgeye's prediction comes true. Other members of the Organization of Petroleum Exporting Countries could rush in to fill the export vacuum, but de facto leader Saudi Arabia is already tacitly supporting higher oil prices as it looks ahead to the 2018 initial public offering of Saudi Aramco, the largest oil company in the world.

For consumers, DeHaan said Trump is playing with fire because the jump in crude oil prices would hurt the average U.S. consumer at the gas pump.

"The odds of $3 per gallon gas are rising," he told UPI.

Motor club AAA listed a national average retail price for a gallon of regular unleaded at $2.51 on Thursday, up 15 cents from this time last year.

Trump's stance on major oil producers was questioned in the past. The administration last year considered tightening sanctions on Venezuela, where energy represents about 95 percent of its export economy. That move would've created U.S. problems as well because, for the refiners concentrated on the U.S. Gulf Coast, Venezuela is the largest source of crude oil, ahead of Saudi Arabia.

Backers of the nuclear agreement outside the United States continued to voice their support. British Foreign Secretary Boris Johnson said in a statement following talks with Iranian and European diplomats that unraveling the agreement would present a real global risk.

"The Iran nuclear deal is a crucial agreement that makes the world safer," he said.

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