The never-ending saga of the US sanction on Iran and Venezuela has taken hit on the crude oil prices in the last year. China and India are the largest importers of oil from Iran and Venezuela. India was the second largest importer of Iranian oil in the world. India has imported around 577,000 barrels in a day. It accounts for 27% of the overall middle-eastern exports of previous year.

The sanctions on both countries led to a major supply gap of oil in the global oil market. This, in turn, led to the Brent crude oil price to hit a 4-year high above $80 per barrel. 

Acceptance of Nuclear Deal:

Iran was in a pickle since the world powers were against it over allegedly making nuclear weapons for destructive purpose. Iran refused to accept and insisted that the nuclear program was entirely peaceful. Until 2015 they accepted the nuclear deal with the world powers – the US, UK, France, China, Russia, and Germany. 

Obligations set out for Iran:

Under the agreement, Iran had to allow the inspectors to check their nuclear activities. Also, they had to lessen it as much as possible. In return, Iran wanted to lift the sanctions that were affecting its weakening economy. They set out some obligations for Iran to follow in a Joint Comprehensive Plan of Action which are.

• Uranium Enrichment –

It is used to make reactor fuel as well as nuclear weapons. Iran had to limit its stockpile of uranium. It was done by 98% to 300kg which should not exceed until 2031. Also, the R&D should only be carried out in Natanz and is not permitted in Fordo until 2031.

• Plutonium Pathway –

They built a heavy-water nuclear facility near Arak. They spent fuel on it contained plutonium which is suitable for a nuclear bomb. Under this action plan, Iran settled to restructure the reactor so it could not make this weapon-grade plutonium.

• Covert activity –

The then president Barack Obama was confident that this plan would prevent Iran to make any nuclear weapons in secret. Inspectors from International Atomic Energy Agency (IAEA) were declared to continuously monitor Iran. It had the right to get access to any sight in the country anytime.

Iran also had to face the ban of many things which would contribute to the making of nuclear bombs.

The sanctions made before were in attempts to halt Iran from producing enriched uranium that crippled the economy. It costs the country about $160bn in oil revenue for 4 years. Under this plan, Iran was able to continue exporting oil in global markets and use the finances globally available. Further, if Iran violates any aspects of the deal the sanctions would automatically come into place for the next 10 years. Moreover, if IAEA is satisfied that Iran is peaceful with its nuclear projects, the sanctions could end early.

Re-imposing Sanctions on Iran 2018

In May 2019, President Donald Trump had stepped out of the Iranian nuclear agreement of 2015. This eased off the sanctions made on Iran, by calling the deal as a disaster. In addition to this, the US imposed some economic penalties and sanctions on Iran. President Hassan Rouhani of Iran responded by saying that his country will not bend from this pressure and threats. He vowed to break the sanctions imposed on Iran. Furthermore, these sanctions included penalizing the buyers of Iranian oil. They blacklisted around 50 Iranian banks, 200 people and ships, Iran’s national airline and almost 65 Iranian aircraft. These penalties included gaping exceptions like for the 6 months India and China were not penalized from import of oil from these countries. This exception was made so that the oil prices could be maintained.

Impact of the Sanctions on Iran

In April 2019, the exemptions of oil exporting completed it’s 6 months leaving the country into the great recession. Here are some major impacts on Iran after the sanctions:

• After the nuclear agreement, the GDP of Iran grew by 12% in the year 2016. This was mainly because of the oil and gas industry’s growth that fell to 3.9% in 2017. After the reinstatement of sanctions, the GDP of Iran has decreased to -4%. It is expected to further reduce to -6% in 2019.

• The sanctions were eased off by the nuclear agreement. As an impact of which the oil output increased up to 3.7 million barrels per day. But as the sanctions were re-imposed, the production of oil dropped significantly to 1.1 million barrels per day in March 2019.

• The oil exports to the main buyers of Iranian oil fell significantly after the sanctions were imposed. Among them, Taiwan, Greece, and Italy completely halted the import of Iranian oil. Whereas, China and India had reduced the imports by 39% and 47% from Iran.

• The currency of Iran, the rial, has devalued by almost 60% after the sanctions.

• The living cost in the country has risen significantly in results of the inflation rates going up from 9% in 2017 to 31% in 2018 and it’s estimated to reach 37% this year.

• Also, the average annual household income is dropping day by day.

US sanctions on Venezuela

In January 2019, the US administration imposed sanctions on Venezuela’s state oil company PDVSA. Before this imposition, US recognized Juan Guaido the head of National assembly as the interim President and ceased to recognize Nicolas Maduro as the president of Venezuela. This sanction has blocked PDVSA and any US persons are prohibited from engaging with this company. There are many such sanctions imposed by the US on Venezuela in the past years. With these sanctions, the US is pressuring Nicolas Maduro to step down.

Impact on Venezuela

• These sanctions would block around $7bn in assets of PDVSA and more than $11bn in lost export proceeds.

• The shipping industry is also facing huge losses because of the oil sanctions made by the US. Several tankers are left idling and nowhere to go while others had to re-route costing tons of money to the owners.

• There is very little food production in Venezuela, leading to a lot of food imports. Because of the sanctions the imports have fallen as there is no foreign currency left with Venezuela. The lack of food has resulted in 3 million people leaving the country.

• If steps are not taken to improve the conditions of Venezuela it would suffer a humanitarian catastrophe.

OPEC CUTS SUPPLY CAUSING OIL PRICES TO RISE