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Oil market might be at stake - REUTERS/Raheb Homavandi
Oil market might be at stake - REUTERS/Raheb Homavandi

US resumes sanctions against Iran, E.U strengthen ties

Oil market might be at stake - REUTERS/Raheb Homavandi

After Barack Obama’s efforts to open a new chapter between the U.S and Iran, current President Donald Trump has taken steps back on the Iran deal

While sanctions against Iran were largely disapproved by the European Union, Iranians have shared with the Associated Press their concern about their future, as “the economy is turning into a jungle”

As trade sanctions are reimposed, Donald Trump announced that any company doing business with Iran will be banned from any activity on the American soil. The sanctions take effect on this Tuesday, August 7th.

Experts are worried that the situation might quickly escalate to a diplomatic conundrum.  

E.U wants to keep a “peaceful program”

France, Germany and the United Kingdom gathered forces to publish a press release on Monday 6th August. Joint Comprehensive Plan of Action is working on its goal to ensure that the Iranian programme remains exclusively peaceful”, the European Union said in a joint statement.

In response, Iranian President Hassan Rohani boasted on his close ties with the European continent, as well as Russia and China, saying that “Beijing is our closest financial ally”. As a matter of fact, only China and Turkey “will refuse to comply with the U.S. demands”, said a Commerzbank analyst.

However, some European companies will follow Trump’s advice. That is the case of German car manufacturer Daimler AG, who announced it will terminate its activities in Iran, including its local bureau.
As for Airbus, it has put on hold its 98 planes orders to Iran, delivering only three earlier this year.

French iconic car maker sold more than 160,000 units last year in Iran and was very hopeful to increase its sales this year. PSA, the other major car facturer does not sell cars in the U.S and said it will pursue its business with Iran, where Peugeot sells 30 percent of all cars.

Also, Air France which resumed flight connections from Paris to Teheran after a thirty year-old hold eventually cut them back. Blaming a “weak demand”, a European diplomat back then explained to Reuters that it only showed “the uncertainty of the Iran deal”.

Oil market might be at stake

For Donald Trump, there is no doubt that companies and countries have to align and choose between the United States and Iran. This might likely put many companies in jeopardy, including oil companies, such as French giant Total.

Starting November 5th, sanctions on Iranian oil will be reimposed. “Geopolitical risk is at the top of everybody’s list of what’s driving the market,” Robbie Fraser from Schneider Electric told MarketWatch.

On a larger scale, the trade sanctions might put the general global oil market at risk – some analysts even mention a global shortage supply.

Market experts think that the sanction could potentially block more than one million barrels a day of Iran’s daily 2.5 million barrels crude exports.

On the other hand, the U.S long term goal is to pressure Tehran’s leaders to prevent from supporting militant activities in the Middle East and end Iran’s enrichment in uranium.

A new 2007 “green revolution”?

However, the situation might not only deteriorate international ties; it might also strike Iranians themselves. While residents are gathering in the street again, Iranians are organizing demonstrations all over the country, just like in 2007.

This time, they protest against an imminent inflation, a high unemployment rate, as well as a more global economic gloom. As of now, experts can only agree that this trend might increase in the upcoming months.

As for now, the American government explained last week it was willing to renegotiate with the Iranian government. Washington is asking Tehran to treat its citizens better, as well as Iran changing its regional policy in the Middle East and agreeing on a tougher deal.

For others, this policy change looks like a cultural fail. “Iran is a big market of more than 90 million people: educated and very aggressive travelers”, said a travel professional.

As Iranians are known in the middle East for being power consumers, multinational companies are worried about the sanctions, which could diminish their growth in the region, already subject to constant political crisis, instability and corruption.

And indeed: three days ago, several top employees from o the Iranian Central Bank was arrested in a corruption scandal,.

The situation might deteriorate

On August 7th, Federica Mogherini in charge of the European Union foreign policy called on EU businesses to do more business with Iran, during a trip in New Zealand. She said that Washington’s decision was “a horrible one-sided deal that should never, ever have been made”.

As of Rohani, he explained on Tuesday that “associating the words sanctions with negotiations is a total non-sense”. The Iranian President also said that the U.S was starting a “psychological war, in order to create distortions”.

And indeed, international reactions might unfold very soon. A few hours ago, German central bank blocked more than $400 mil. ahead of U.S striking sanctions.

 

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.