The U.S. had granted China, India, South Korea, Japan, Turkey, Greece, Italy and Taiwan temporary oil waivers in November 2018 with respect to the sanctions applied on oil trade with Iran. The waiver in question ends this week on May 2.
It is obvious that a new period will begin in terms of countries importing oil from Iran. These countries will either have to find new producers to meet their oil needs, or increase their oil imports from the current countries they purchase from.
So, what will Iran do in this situation as the country facing the sanctions? What will Iran’s next move be? What is in store for the world energy markets?
WHAT WILL IRAN DO?
Iran is a country that depends on its oil revenues. Just as Turkey is dependent on oil and natural gas, Iran is a country dependent on revenues from oil and natural gas. Also, while Iran is among the top four countries of the world with oil reserves, it ranks first in natural gas.
Hence, Iran being unable to export oil, while it is so dependent on revenues from oil and natural gas, will be a great destruction for its economy.
Meanwhile, Iran has control over the Strait of Hormuz, where 40 percent of the world’s oil transfers take place. Iran’s threat to close the Strait of Hormuz in the case that it becomes unable to export oil to the world, has strategic importance in terms of global oil export.
Therefore, Iran’s threat will enter a new phase following sanctions.
Of course, one other matter is where China and India, which have high dependency on oil and high oil demands, will meet this need. It is projected that the sanctions, which also have a political aspect, will further deepen the trade wars between China and the U.S.
WILL IRAN USE ITS TRUMP CARD TO CLOSE OFF THE STRAIT OF HORMUZ?
It is clear that oil export is of vital importance for Iran. Economic problems in Iran are already on the rise due to economic sanctions. Therefore, it is obvious that it will not be very acceptable for Iran failing to export oil and be pushed out of the oil equilibrium.
Hence, it is expected to use many of the trump cards it holds in this region. The most important of these is to close off the Strait of Hormuz, which it holds control over and allows the transit of oil to the world.
WHY IS THE STRAIT OF HORMUZ IMPORTANT?
The Strait of Hormuz is significant, because in addition to its geographical position, it is also a strategic transit route that allows important countries possessing oil resources in the Middle East to transfer these to the Asian, European, Pacific and North American energy markets. Additionally, it is also clear that it has extra importance in the region in terms of being the connection between the Arabian Sea and the Persian Gulf.
Meanwhile, more than 40 percent of the oil transferred to international markets happens via the sea passages through the Strait of Hormuz. Crude oil producers in the region like Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq transfer a large portion of the oil to world energy markets through the Strait of Hormuz.
So, while the Strait of Hormuz has such a strategic position, will Iran make good on its threat to close the Strait of Hormuz? If Iran does go ahead , how will the U.S. and the other oil producers in the region react?
These seem to be the most serious questions. On a different note, as this problem faced by world oil producers is an important threat for world oil trade, how the problem in demand will reflect on oil prices is one of the primary questions to which we will seek an answer in the upcoming period.