Brent crude heads towards $75 per barrel as US announces plans for a complete oil embargo on Iran.
- Introduction: Brent hits 2019 high
- Washington to end sanctions waivers for 10 countries, including India and China
- Analyst: US aiming for ‘death blow’
- Full story: US ending exemptions from oil sanctions
Newsflash: Donald Trump has just threatened to hit Europe with fresh tariffs, over their “unfair” treatment of motorbike maker Harley Davidson.
“Harley Davidson has struggled with Tariffs with the EU, currently paying 31%. They’ve had to move production overseas to try and offset some of that Tariff that they’ve been hit with which will rise to 66% in June of 2021.” @MariaBartiromo So unfair to U.S. We will Reciprocate!
Many @harleydavidson owners plan to boycott the company if manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! U.S. will soon have a level playing field, or better.
Phillip Inman, economics writer for the Guardian, has looked at the IHS Markit Household Finances Index, out this morning, and found it contains more evidence of rising incomes from employment feeding higher levels of consumer confidence.
Households reported the strongest rise in wages during April since the index began in 2009. The index for wages increased to 53.1 from 51.1 in March.The compilers of the index said the increase in wages income tracked the rise in official figures from the Office for National Statistics, which showed average weekly earnings, including bonuses, rose by 3.5% on the year in the three months to February. This was the fastest level of pay growth in a decade.
“The bright spot for the UK in recent months has been the resilience of its labour market, and latest survey data from households revealed that some of the positivity seen in the hard numbers has filtered through to sentiment and is supporting household finances.
“Income from employment grew at its fastest pace since the survey started in 2009, corroborating with the pick-up seen in official wages data.
Higher oil costs eat into airline profits, so it’s not surprising to see easyJet (-4%) and IAG (owner of British Airways) (-3.3%) at the bottom of the FTSE 100.
The jump in oil stocks means Britain’s FTSE 100 is holding onto its six-month high, but other European markets have dipped.
The lack of direction at the start of the week isn’t surprising given the quiet bank holiday weekend but thankfully, things should pick up. Earnings season has got off to a better than expected start and we have a large number of companies reporting over the next few days.
It’s still expected to be a challenging quarter for the corporates but the bar has been sufficiently lowered which may allow them to get through the season relatively unscathed. We’re certainly off to a good start on that front with US markets very close to record highs.
Peter Kiernan, lead energy analyst at the Economist Intelligence Unit, argues that Donald Trump is taking a risk by escalating the sanctions on Iran.
The Trump administration is banking on being able to curtail Iran’s oil export revenue as much as possible, while hoping that the impact on the oil market will be limited by Saudi Arabia being able to release additional supply. Trump officials say it is seeking to maximise pressure on Iran until it returns to the negotiating table.
However, many of the political demands the Trump administration has on Iran, which go well beyond the nuclear issue, are unlikely to be conceded by the Islamic Republic, meaning that a long standoff is on the cards.
As the largest purchaser of Iranian oil, China has, predictably, not taken America’s move well.
Foreign ministry spokesman Geng Shuang on Tuesday said the U.S. is operating outside its jurisdiction in unilaterally imposing the sanctions. He said normal interactions between Iran and other countries are “reasonable and lawful” and deserving of respect and protection.
Shuang said China will continue to work to safeguard its companies’ interests, reflecting its desire to secure foreign markets as it pursues its massive “Belt-and-Road” infrastructure initiative.
Saudi Arabia’s foreign minister has welcomed America’s move to toughen Iran’s oil sanctions, saying it should rein in Tehran.
Ibrahim al-Assaf told state media:
“Saudi Arabia fully supports this step taken by the United States as it is necessary to force the Iranian regime to end its policy of destabilising stability and its support and sponsorship of terrorism around the world.”
The Trump administration’s “not so invisible hand” is pushing the oil price higher today, says analyst Stephen Innes.
He argues that the White House wants to pick a fight with Iran ahead of next year’s elections.
Admittedly I’m feeling a tad naïve this morning for not picking stronger signals from both Pompeo and Bolton with regards to Iran policy.
This despite the fact I thought a large part of the Trump election 2020 strategy would not only see the President appeal to his electorate base but of course present to the media a new villain since China will probably no longer fit the bill after a watered-down USMCA-style trade deal is signed. Well, it appears that the new villain is neither new nor surprising and was under our nose all the time.
Americans won’t welcome the prospect of higher gasoline bills. So, with the next election on the horizon, why is Donald Trump risking a backlash at the pumps?
Suzanne Maloney, deputy director at Brookings Foreign Policy, believes the Trump White House wants to deal “a death blow” to the Tehran administration. But such a move risks destabilising the Middle East.
The past decade has demonstrated emphatically that Washington can decimate the Iranian economy and that the international community has neither the recourse nor the incentive to wholly forestall that outcome. However, there is simply no precedent for an externally-driven economic implosion to trigger a successful transition away from a well-entrenched authoritarian regime toward a durable democracy or enhanced regional stability.
And there is even less reason to believe that the current constellation of American decisionmakers has engaged in a prudent consideration of the second and third-order consequences to U.S. interests and allies that may flow from its escalation of economic warfare against Iran. General Alireza Tangsiri, commander of Iran’s Islamic Revolutionary Guard Navy, today reiterated the energy security formula that Tehran has observed for the past 30 years, warning that if Iran is prevented from exporting oil, its neighbours will face similar impediments…
Britain’s blue-chip index of top shares has hit a new six-month high.
A total Iranian oil embargo would have a noticable impact on global crude production.
Iran is thought to have produced around 1.7 million barrels of oil per day in March, out of a global market of some 80 million bpd.
Iran has responded to America’s move by threatening to close the Strait of Hormuz (the narrow point between the Persian Gulf and the Gulf of Oman, stretching from Iran’s southern border to the United Arab Emirates).
Here’s a picture, for those who skipped geography class.
Shares in energy companies have jumped in early trading, as the City reacts to the US crackdown on Iran.
Royal Dutch Shell is leading the FTSE 100 risers, up 2%, closely followed by BP (+1.6%).
Suddenly we’re back to supply uncertainty being a graver threat than demand uncertainty. This risks a very real prospect of an abrupt spike in prices if there is not enough supply to fill the gap. It is no guarantee that Saudi Arabia can simply open the taps, moreover having made that mistake last year ahead of the sanctions being imposed, the country will seek clear evidence that it needs to raise output before doing so.
Risks seem skewed to the upside for oil and we may see a pop higher still.
America’s goal is to impose a total oil embargo on Iran, explains my colleague Julian Borger.
“Today I am announcing that we will no longer grant any exemptions,” Mike Pompeo, the secretary of state, said. “We’re going to zero. We will continue to enforce sanctions and monitor compliance. Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits.”
Neither Pompeo nor senior state department officials would say whether sanctions would be immediately imposed on the affected countries on 3 May, if oil purchases continued.
The sanctions squeeze on Iran has driven US crude oil over $66 per barrel for the first time since the start of November 2018.
That mirrors the rise in Brent crude (sourced from the North Sea).
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.
“The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied.
White House statement from the Press Secretary on cooperation between the United States, Saudi Arabia, & the United Arab Emirates on Energy and Iran Policies.
( $WTI $BRENT $XLE all higher ) pic.twitter.com/CLBVl73sWi