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U.S. implements tough sanctions on Iran, OPEC output deal in jeopardy

The output agreement between OPEC and its allies may soon fall apart due to President Donald Trump’s decision to pull out from the nuclear agreement with Iran. As per reports, the return of sanctions on Iran may disrupt oil shipments with an estimated 1 million barrels of Iranian oil supply going offline.The kingdom has not yet disclosed its response to end the OPEC agreement, but it is expected that the removal of the Iranian crude will result in a surge of oil prices if the other produces do not step in to fill the supply gap. Reportedly, Saudi Arabia, Kuwait, the United Arab Emirates, the United States and Russia have the required oil capacities to raise exports in the short term, while Kuwait, Abu Dhabi and Saudi Arabia have the necessary spare capacity to respond effectively to Iranian export reductions. Sources cite that even Russia is capable of filling in the gap and the Russian crude quality is equivalent to that of Iran.

According to reliable reports, the U.S. Treasury Secretary confirmed that the U.S. and Saudi Arabia have reached a considerable level of political understanding. The agreement states that the United States is conducting conversations with several parties including Saudi Arabia to increase oil supply to avoid spike in oil prices while the U.S. will intensify pressure on Iran.

Many informed sources speculate that Trump’s tweet in April which blamed OPEC for high oil prices might be playing a part in the negotiation process that is underway to reach an understanding with Saudi Arabia.

Gasoline prices in the US have already surged to $3 per gallon on an average which is the highest since 2014 and has increased by $2.50 since 2017. Experts are anticipating that the U.S. politicians will try to reach an effective understanding with Saudi Arabia rapidly in order to avoid any further escalations and avoid being blamed just prior to the congressional elections in November.

Paroma Bhattacharya: