US Sanctions on Iran threaten Saudi Arabia
In May of 2018, President Donald Trump pulled the United States out of the Iran Nuclear Deal with the goal of getting “oil exports from Iran down to zero”, according to National Security Advisor John Bolton.
The sanctions put in place limit the number of nations to just eight in which Iran can export oil to. How much each nation can receive has been held under tight wraps, leaving oil exporters in a frenzy to capitalize.
Since the sanctions took place, Iranian crude oil sales are down 40% and the oil markets have dropped 20%. This brings the current price of oil down to US$80 per barrel.
This is where Saudi Arabia has a problem.
Saudi Arabia should be happy that the United States is damming Iranian oil exports, but the plunging prices are punishing the Kingdom. Saudi Arabia requires the price of oil to be set at no less than US$88 per barrel in order to balance its budget. As the nation continues its costly war effort in Yemen, and faces the public relations disaster that is the senseless murder of journalist Jamal Khashoggi at the hands of government officials, the last thing they want to worry about are sanctions on an enemy nation hurting their own economy.
While things look good now, and we can expect the prices at the pump to continue dipping, we need to keep an eye on this situation. As proven in the past, OPEC nation’s, especially Saudi Arabia, have the ability to flip the markets upside with drastic measures if they feel the need to. The Trump Administration has threatened legislation identifying OPEC as cartel-like if such actions are taken, but it is unlikely anything could be done in time to prevent the headaches caused by Saudi retaliations.