The United States has not only re-emerged as the world’s largest oil producer, but the superpower is playing a pivotal role in global oil market balance through its foreign policy, choking off exports from Iran over the past 18 months, analysts say.
While Saudi Arabia and other oil exporters met in Vienna to consider the next phase of their three-year-old deal to restrain global supply, it would be easy to forget that Iran has been forced to cut exports by more than 2 million bpd over the same period thanks to Washington’s increasingly effective policy of “maximum pressure.”
Iran’s oil exports have fallen from 2.5 million barrels per day in 2017 to 120,000 bpd today, according to the US State Department. At the same time, US oil production has risen dramatically from 8.9 million bpd in January 2017 to 12.9 million bpd at the end of last month, overtaking Russia and Saudi Arabia as the world’s largest producer, according to the US government’s Energy Information Agency.
“US foreign policy has played a pivotal role in global oil supply,” said Roger Diwan, Vice President at IHS Markit, an advisory firm. “Even though US foreign policy is driven by politics rather than market factors, the result has been that the sanctions have made space for the US production to make it to the market,” he added.
Brian Hook, US special representative for Iran, told Al Arabiya last month that progressively tighter US sanctions had succeeded in denying the regime in Tehran $36 billion in annual revenue from oil exports that it used to fund its ballistic missile program, and finance violent groups across Iraq, Lebanon, Syria and Yemen.
The US imposed heavy sanctions on Tehran when it pulled out of the Iran nuclear deal in May 2018, but it was careful to offer waivers to European and Asian consumers of Iran’s oil to prevent the measures from causing oil prices to skyrocket. It has progressively removed these waivers as market conditions have allowed.
“We had to grant a handful of oil waivers at that time because we faced a very tight oil market and there wasn’t enough supply in the system relative to demand that would have allowed us to zero out Iranian imports without also spiking the price of Brent crude oil,” Hook said in the interview last month. “We’ve got a very good job of balancing our economic interests and our national security interests. As soon as we faced a much more liquid oil supply and not as much demand as supply, that put us in a position to zero out all imports of Iranian crude oil.”
Yousef Alshammari, CEO of CMarkits, said the US was highly influential across many aspects of global oil supply and demand.
“It is influential in terms of domestic production and in terms of foreign policy by taking Iran’s exports off the market,” he said, adding that Washington’s management of strategic oil reserves was another important string in its bow.
“Oil prices are always important to US policy making, particularly in foreign policy,” Alshammari continued. “It is unlikely that the US would do anything in foreign policy that caused oil prices to skyrocket, particularly before an election year,” he said in reference to next year’s US elections.
OPEC and allied countries are expected to discuss deepening the current 1.2 million barrel per day oil supply cut at its policy meeting later on Thursday, as forecasters predict a glut of oil in the world market early next year unless further action by exporters is taken.