July 11 (UPI) -- Isolating Iran from the oil market should have minimum market disruptions because of close cooperation with Saudi Arabia, a U.S. official said.
U.S. President Donald Trump's decision to walk out of the Joint Comprehensive Plan of Action in May means some unilateral sanctions on Iran will be reinstated by August. Sanctions extending to the oil sector snap back on Nov. 4 and the U.S. government has said it wants to zero out Iranian oil exports by then.
Isolating Iran could sideline millions of barrels of oil per day from a market with little spare capacity left. A report last week from Swiss investment bank UBS found spare capacity, the amount of oil a producer can add to the market in short order, could fall to a 10-year low within the next year.
Speaking to reporters on background, a senior U.S. State Department official said the Trump administration was "very serious" about imposing sanctions on Iran's oil, from which Washington suspects Iran derives revenue to fund malign behavior in the Middle East.
"We are working very closely with nations to provide alternatives to the Iranian supply of oil," the official said. "We're very confident that we'll be able to do that without market disruptions and working closely with the Saudis and other oil producing nations to make sure that we have a well-supplied oil market."
Saudi Arabia in June produced on average 10.4 million barrels of oil per day and UBS said the de facto head of the Organization of Petroleum Exporting Countries has never produced more than 10.7 million bpd. Tapping into its estimated 2 million bpd in spare capacity could cause damage to its reservoirs, the Swiss bank speculated.
In a Tuesday interview with Sky News Arabia, U.S. Secretary of State Mike Pompeo suggested there might be some room to maneuver on Iranian oil exports. European powers have vowed to uphold the agreement and the Turkish government is among those saying it won't be influenced by unilateral U.S. sanctions on Iran.
Pompeo said sanctions would be enforced.
"There will be a handful of countries that come to the United States and ask for relief from that," he said. "We'll consider it."
Iranian First Vice President Eshaq Jahangiri said it would be difficult to sideline Iran, the third-largest OPEC producer, completely.
"We ought to produce the crude oil we require domestically and export our surplus output," he was quoted by the Iranian Oil Ministry's new website SHANA as saying. "We, as officials, must work out the best methods against U.S. measures."