Global oil prices are on a tear, hitting highs not seen since the summer thanks to a surprise package of American sanctions on Russia and anticipation of a new Iranian “maximum pressure campaign” when President-elect Donald Trump takes office on 20 January.
Brent crude prices were up 1.93 percent on Monday morning at $81.29 per barrel, their highest level since August.
The rally is driven by the Biden administration’s decision on Friday to unveil new sanctions on Russia in its last days in office. The sanctions target major Russian oil producers, more than 180 tankers belonging to Russia’s “dark fleet”, and traders.
The sanctions underscore the heft of the US dollar, which gives the US unparalleled sway over the global financial system, as most trade is conducted in the greenback, which is also the world’s reserve currency.
At least 65 oil tankers have already dropped anchor, including off the coasts of Russia and China, as the surprisingly strong sanctions came into effect. The sanctions could force top buyers of Russian oil, like China and India, to go back to the Arabian Gulf for supply.
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The global oil trade underwent a significant rewiring under the Biden administration after the Ukraine war erupted. Russia sold discounted oil to Asia and chipped into the market share of countries like Saudi Arabia, which sent more supplies to Europe.
Trump’s return to the White House injects new uncertainty into this trade.
‘I put them on and take them off’
Trump says he wants to broker an end to the war in Ukraine, which transition team insiders previously told Middle East Eye would involve sanctions relief.
However, Trump has walked back his pledge to end the war in Ukraine ‘“in 24 hours” from taking office, saying it could take several months, as Russian forces, backed by North Korean troops and Iranian arms, advance.
But Trump has also raised concerns about the long-term cost of American sanctions, saying shortly before his elections: “I was a user of sanctions, but I put them on and take them off as quickly as possible because ultimately, it kills your dollar, and it kills everything the dollar represents. And we have to continue to have that be the world currency.”
Trump poised to unwind Biden’s rewiring of global energy trade
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TankerTrackers, a company that monitors oil shipping, said it anticipates the incoming Trump administration will maintain the new sanctions and potentially add to them to help boost American energy exports.
“The Trump administration will impose additional sanctions on tankers associated with Iran and Venezuela, as well as on the Russian LNG ecosystem, in order to capitalize on the European Union’s rising demand for natural gas,” TankerTackers said.
Trump’s professed aversion to sanctions does not appear to apply to Iran.
Former Trump officials and Arab diplomats previously told MEE he plans to resume a “maximum pressure” campaign designed to choke Iran’s oil revenue. Under Biden, sanctions enforcement loosened and Iran’s revenue from oil exports nearly doubled from $28bn in 2019 – the year after Trump unilaterally withdrew from the 2015 nuclear deal – to $53bn in 2023.
The Wall Street Journal reported on Saturday that in January, Iran began to draw down millions of barrels of its oil from a storage site in China to raise revenue ahead of Trump’s return to the White House.
It is uncertain whether Trump will be able to get China – now the top buyer of Russian and Iranian oil – from continuing purchases. But the recent price rally underscores how US sanctions can force prices higher.
The US’s Gulf allies, which have struggled with oversupply, would be beneficiaries if Trump manages to take crude off the market, but sanctions work both ways for Saudi Arabia.
The kingdom’s position in Asia’s oil market has been undercut by Iran and Russia selling heavily discounted crude because it is sanctioned. However, a rally in oil prices could help Saudi Arabia as it pursues costly mega-projects like Neom designed to diversify its economy.
The International Monetary Fund says Saudi Arabia needs the price at around $100 a barrel to balance its budget.
