President Trump is not a huge fan of the most important meal of the day. Back in 2016, Trump spoke to Fox News’ Jesse Walters and said that if he can, “he’ll avoid breakfast,” but when he gets those morning tummy grumbles, sources close to Trump say he’’ eat bacon and eggs, or cereal, with his preferred cooking of eggs being “over-well.” For those unfamiliar with American egg-ordering vernacular, “over-well” is when the egg is fully fried and the center-yolk is fully cooked. I’ve never heard anyone order it this way, but Trump can eat whatever he pleases.
Trump also hates bad deals, arguably more than he despises a nice breakfast. Back in May, the president made good on his campaign promise to do away with the Iran nuclear deal completely. At the time of his announcement, he also said he planned on reimposing sanctions on Iran’s oil sector that had been lifted by former President Barack Obama during his second term.
Trump’s withdrawal from the Iran deal resulted in the enactment of financial penalties placed on Iran, including restricting their ability to purchase or acquire US dollar banknotes, trade in gold, and make transactions using the Iranian rial, their official currency. While these penalties will undoubtedly place pressure on the Iranian economy, the most serious sanction involves major taxes on Iran’s oil exports.
The official language regarding the reimposition of sanctions pursuant to the “Join Comprehensive Plan of Action” JCPOA states that after the wind-down period ending on November 4, 2018:
“Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran.”
–JCPOA FAQ August 2018
The United States is trying to get as many actions as possible to decrease their dependency on Iranian crude oil. Stakeholders in the global crude market are concerned that U.S. sanctions will punish the Iranians, but may “shoot the U.S. consumer in the foot” during the process. Investor worries are growing due to a possible fear of oversupply of oil production, given that oil prices fell 1% on Friday, resulting in a weekly loss of over 6%, according to CNBC.
As it stands, Iran is the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC). In anticipation of the U.S. oil sanctions, Iranian oil production dropped to 1.5 million barrels a day in September, compared with 2.3 million barrels a day in June, according to the Wall Street Journal. Analysts believe that another million barrels per day will be eliminated from Iran’s production, leading to a global increase in oil prices.
“The pillars of oil market strength over the last few months are still there — inventories and spare capacity are both low by historical standards, leaving little buffer in the oil market, [and] Iran’s exports will likely continue to fall as U.S. sanctions kick in.”
–Martijn Rats, Commodities Strategist, Morgan Stanley
With the Iranian oil industry set to take a massive hit following sanctions from the U.S., several other members of OPEC, including Russia and the United States, are competing for heavy-weight oil producer of the world. As reported by US Energy Information Administration (EIA), American crude production sits well above 11 million barrels per day, and these production stats will only increase as President Trump continues with his efforts to edge Iran out of the global crude market.
“The fear that overseas producers and, to a lesser degree, the U.S. [Energy Department] will overcompensate for the only moderate supply drop from Iran is weighing heavily on the market right now. It seems that a new fight for the market share is emerging between global oil procures and that is always a bearish scenario for energy prices.”
–Tyler Richey, Co-Editor, Sevens Report
Richard Nephew, an adviser to the State Department during the Obama Administration, told Vox reporters that he believes the Iranians may not bow to America’s demands. We will see in the coming months after the Iranian sanctions take effect how the global market responds. Analysts are struggling to forecast oil prices without having knowledge of who’s producing the most oil, and how the cost per barrel will behave.