Last week, President Obama stepped up sanctions on Iran; declaring that countries importing oil from Iran have until June 28 to significantly reduce imports or face being cut off from trade with the U.S. This seems rather bold especially with recently high oil prices, but the Obama administration claims that they have done analysis and believe there is enough production elsewhere. These measures mainly affect China, India, Turkey, South Africa and South Korea. Japan and some other countries get more time because they have already reduced imports from Japan .
Turkey complied immediately with this new sanction and announced a 20% reduction in imports from Iran. However, China, the biggest importer announced that its imports will be based on demand and not politics . If China does not comply, will the other countries also decide to thumb their noses at this new sanction?
To me, this seems like a very risky move for Obama to make. Oil prices are already high and he was receiving a lot of pressure before he followed through on this sanction. Obama will be relying on the coordinated release of oil stockpiles and on Saudi Arabia to pick up its exports to fill the demand that would be created with the removal of Iran’s exports, which could be as high as 1 million barrels a day . Officially, Saudi Arabia has the capability to boost its production capacity another 2.5 million barrels a day, but it would take more than a few months to do so. Also, this would mean the oil supply is even more vulnerable in the Strait of Hormuz, though Iran would be committing economic suicide if they tried a blockade .
Perhaps heavier sanctions are needed to bring Iran to the table regarding their nuclear program and it could prevent an armed conflict, but it was a shock to me when I first heard this news. It seems timing could not possibly be worse with the high oil prices and presidential election coming up.