Thanks to fracking, Trump can bankrupt bogeyman Iran without fear of roiling oil markets.
A ship allegedly sabotaged off Fujairah on Monday. It’s all part of the Trump strategy of “maximum pressure” on Iran. A year ago, when Trump snapped sanctions back in place and scrapped the nuclear deal, Iran was exporting 2.9 million barrels of oil per day. As of May, that number is said to be below 1 million bpd. Trump wants it down to zero. That loss of foreign income has crippled Iran, which is in recession and facing 30% inflation.
Traders have had some time to adjust and find replacements for Iranian oil, but amid pipeline disruptions in Russia, societal collapse in Venezuela and militias on the move in Libya, the market has grown tighter than prompt-month prices would imply, says Amrita Sen, an analyst at Energy Aspects. As a result, even obscure grades of crude from Angola and Nigeria are now trading at a premium to Brent benchmarks.
A hole on the water line shows the impact of an attack on this Norwegian ship off Fujairah this week. Would Iran’s ruling mullahs, backed into a corner, really risk the repercussions of blockading Hormuz? Unlikely. It does remain a vital chokepoint, moving some 18 million barrels per day, according to Rystad. Qatar, Kuwait and Bahrain move nearly all their crude oil via Hormuz. Iraq about 75%.
The rest of the world’s oil delivery system has too. Thanks to the oil fracking revolution, the U.S. is now producing 12 million barrels per day of crude oil, more than double a decade ago, and with years of more growth to come. By 2022 the U.S. could vie with Saudi Arabia as the world’s biggest oil exporter. It matters.
over at Columbia’s SIPA Center: “The problem appears not to be with the implementation of sanctions but rather with the difficulty of their assigned objective: undermining the Iranian regime’s internal cohesion such that it either makes sweeping policy concessions and/or collapses.” Heading into the 2020 election, Trump has America’s oil frackers to thank for his freedom to conduct a swarthy foreign policy in Iran and Venezuela. If only that were enough.
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