On April 22, the White House announced that it would no longer grant sanctions exemptions to countries or regions currently importing Iranian oil. The deadline was May 2, which was described by US media as an indication of the Trump Administration's "extreme pressure" policy escalation. Previous market expectations were that the United States would probably extend some exemptions.

U.S. sanctions against Iran have become a black hand in controlling the rise and fall of crude oil

On May 8, 2018, Trump announced that the United States would withdraw from Iran's nuclear agreement and impose severe sanctions on it. In June of the same year, the United States pushed countries to stop importing Iranian crude oil from November, and the United States hoped that Iranian oil shipments would drop to zero by November 4. Concerned about sanctions, some countries reduced and suspended imports of Iranian crude oil in the third quarter of 2018. Affected by the decline in Iranian crude oil exports, global supply scarcity worries boosted the market atmosphere. In early October 2018, WTI settled prices exceeded $76 per barrel for the first time since November 21, 2014, and Brent crude oil futures exceeded $86 per barrel for the first time since October 29, 2014.

But then came the news that the United States licensed some countries and regions to import Iranian oil. Oil prices fell sharply. At the same time, the United States granted eight countries and regions temporary immunity, allowing these countries or regions to continue to buy oil from Iran for nearly half a year. The countries and regions subject to temporary exemption are China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea. The United States allows these economies to continue to buy Iranian oil, some of which are major buyers of Iranian oil. U.S. President Trump said he hoped to gradually implement oil sanctions against Iraq. In November 2018, countries and regions resumed imports of Iranian crude oil, and OPEC increased crude oil production. WTI crude oil futures fell below $50 for the first time in more than a year. According to the data monitored by Purchase and Plastics Research Institute, WTI crude oil futures fell to $42.68 per barrel on December 24, 2018, a new low since June 2017. During this period, the most famous "Black Swan Event" occurred in the capital market - Sinopec subsidiary Union Petrochemical was exposed to huge losses in crude oil futures trading.

In 2019, non-OPEC oil producers such as OPEC and Russia jointly cut production again, and international oil prices rebounded from the low point and continued to rise. In early April, the United States and Iran identified each other's forces as terrorist organizations, which intensified tensions between the two countries. As a result, international oil prices continued to rise. According to the data monitored by the Institute of Purchasing, Chemical and Plastic Research, as of April 22, the settlement price of WTI crude oil futures main contract was $65.7 per barrel, up $1.70, or 2.7%. The settlement price of Brent crude oil futures main contract was $74.04, up $2.07, or 2.9%, the highest since November 2, 2018.

ran's crude oil exports fell again

In November 2016, the OPEC cut-off agreement set a ceiling of 3.797 million barrels per day for Iran. The basic dimension of Iranian crude oil production in 2017 was 3.8 million barrels per day, but it dropped to 3.5 million barrels per day in 2018. At the end of 2018, when OPEC signed another cut-off agreement, Iran was exempted from participating in the cut-off agreement because of the sanctions imposed by the United States on the Iranian oil industry. According to the assessment data, Iranian crude oil production in the third quarter of 2018 was 3.6 million barrels per day, and in the fourth quarter it was reduced to less than 3 million barrels per day. In the first quarter of 2019, Iran's crude oil production was about 2.7 million barrels a day, and its exports dropped to about 1.5 million barrels a day.

On April 2, Brian Hooker, Senior Policy Adviser to Secretary of State Pompeo, said in a State Department briefing that the United States was "putting all purchases of Iranian crude oil back to zero". He also mentioned that three of the eight importers previously exempted had "zero imports now", and a total of 23 importers had stopped importing Iranian crude oil. Affected by this, Iranian crude oil export volume in April has fallen to the lowest level since then, to 1.1 million barrels per day.

Whether the cut-off agreement can be extended remains to be seen

Because of the decision of the United States, the cut-off agreement reached by OPEC and other oil-producing countries is not a welcome news. Russia has signaled that it will decide whether to extend the cut-off agreement after the expiration of June. According to market expectations, Russian crude oil and condensate oil production will increase slightly in 2019, while US oil began to enter the market and gradually "nibble" OPEC and other oil-producing countries'market share, which does not exclude the possibility of Russia withdrawing from the cut-off agreement after the expiration of the agreement, restoring crude oil production and further growth in order to protect its market share.

Sources say Saudi Arabia and the United Arab Emirates are ready to increase production to offset Iran's production cuts. The two countries said they were fully capable of increasing production by about 1.5 million barrels a day in a short period of time. According to the data, the new oil will compensate for the losses caused by Iran's "leaving" market one by one.

But the agreement was driven by Saudi Arabia, and if Saudi Arabia increased production to offset Iran's losses, it would be difficult for him to persuade other countries to continue to limit their production. The cut-off agreement will probably expire in advance and even cause greater division within the OEPC.

At present, OPEC countries still have 2.8 million barrels/day surplus production capacity, while non-OPEC participating in production reduction also has 200,000 barrels/day surplus production capacity, a total of 3 million barrels/day, which can be said to have the ability to cope with the complete cessation of Iranian crude oil exports. But if any of Venezuela's and Libya's oil supply disruptions occur during this process, there will be a significant shortage of global oil supply.

In the current supply pattern of crude oil market, there are significant uncertainties in Libya and Venezuela. Venezuela's output has fallen from 1.15 million barrels per day in early January to 730,000 barrels per day in March, and the current situation does not exclude the possibility of further deterioration.

Tension in the Persian Gulf geopolitics or another push up oil prices

Faced with the threat of the United States, Iranian officials have countered that if the US "blockade order" prevents Iran from exporting crude oil, Iran will not hesitate to blockade the Strait of Hormuz, "so that other countries in the region do not want to export crude oil". But now the U.S. government has announced an end to the exemption from sanctions on Iranian oil imports. All Iranian oil importers must stop imports in the short term, or they will be subject to U.S. sanctions. That means global crude oil supply will soon be reduced by 1.1 million barrels a day.

In response to the fact that the United States no longer extends the exemption clause allowing countries to buy Iranian crude oil, at a regular press conference held at the Foreign Ministry on April 22, spokesman Geng Shuang said that China has consistently opposed the implementation of unilateral sanctions and so-called "long arm jurisdiction" by the United States. China's cooperation with Iran is open, transparent, reasonable and legitimate, and should be respected. The Chinese government is committed to safeguarding the legitimate rights and interests of its enterprises and is willing to play an active and constructive role in promoting the stability of the international energy market.

So, in the most likely case, Iran may avoid U.S. sanctions from other channels or, after many rounds of negotiations, the U.S. may extend immunity to some countries.

But in the short term, the situation in the Persian Gulf may become more tense. Geopolitical factors will continue to push up oil prices. WTI crude oil is expected to hit the $70 threshold.