Trump gambles with gas prices as he goes after Iran
President Donald Trump is no fan of high oil prices, knowing that pain at the gas pumps could cost him votes at the ballot box.
But on Monday, Trump took a step that risks that very scenario.
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The Trump administration announced that it will no longer waive sanctions on any countries that import oil from Iran, one of the world’s top petroleum producers. The decision means that eight governments that had earlier been granted waivers, including China, India and Turkey, may face U.S. sanctions if they keep buying Iranian oil beyond May 2.
The move is designed to further weaken the Islamist regime in Iran, which Trump views as global menace. But it also illustrates how Trump‘s foreign and domestic priorities can sometimes clash.
Oil prices rose 3 percent Monday morning, hitting the highest level so far this year after news of the sanctions decision. The move is also expected to push U.S. gasoline prices up at least 10 cents a gallon in the lead up to the summer driving season, market analysts said.
The administration said it had prepared for such a scenario. To avoid a shortage in oil markets, the United States, the United Arab Emirates and Saudi Arabia will adjust their own oil production, the White House said in a statement.
Trump, who just two months ago tweeted that oil prices were too high, downplayed the risks of his latest move on Monday.
“Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil,“ the president tweeted, referring to the Organization of the Petroleum Exporting Countries, an intergovernmental body that controls much of the world’s oil production.
Still, there are any number of factors in play that could make Trump think twice in the months ahead.
For one thing, Saudi Arabia may decide higher oil prices would boost shares price for its giant state-owned oil company Saudi Aramco, which is preparing for an initial public offering on the stock market. As a result, the Saudis may eventually choose not to ramp up production to offset the losses from Iran.
“There’s no mystery that Saudi Aramco is looking to file an IPO,” said Patrick DeHaan, a senior petroleum analyst at fuel analyst website GasBuddy.com. “Keeping prices in check might clash with their own agenda.“
Even if Saudi Arabia increases its oil output, the light type of oil it exports isn’t the same “heavy oil” that flows out of Iran and would be needed by many refiners to replace the crude oil blocked by the sanctions.
Still, one of Saudi Arabia’s priorities is reducing Iranian influence in the Middle East, where Tehran backs an array of militias. The Saudi royal family has thus backed U.S. efforts to contain Iran.
In a statement Monday, a Saudi official said the country is “closely monitoring the oil market developments following the recent statement from the U.S. government regarding oil export sanctions on Iran. The Kingdom would like to reiterate its long-standing policy of working towards oil market stability at all times.
It promised, however, that: “Saudi Arabia will coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance.“
Other factors could affect oil prices in the coming months.
Refineries along the East Coast were already experiencing a spate of unplanned outages that have choked back gasoline production in the region to its lowest in years, according to government data. The new Iran sanctions could drive up competition — and the price — for the type of crude oil favored by refineries in Texas and Louisiana.
Then there’s the upcoming summer driving season, which means higher demand for gas in the United States.
“We’re going to see higher gasoline prices,” said Sandy Fielden, director of oil and products research at financial analyst group Morningstar, adding that if prices rise too far and spark public outcry, the Trump administration may decide “they didn’t mean it after all” on the sanctions.
There’s also the possibility that some of the countries being told to cut off their Iranian oil imports may choose to ignore the sanctions threat. That could add confusion to the markets. China, for one, has given no indication of whether it will respect the U.S. demand.
“China opposes the unilateral sanctions and so-called ‘long-arm jurisdictions‘ imposed by the U.S.,“ the country’s foreign ministry spokesman said Monday. “Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected. Our government is committed to upholding the legitimate rights and interests of Chinese companies and will play a positive and constructive role in upholding the stability of global energy market.“
State Department officials, including Secretary of State Mike Pompeo, would not say Monday exactly what sorts of sanctions they plan to impose on countries that ignore the U.S. demands. They kept insisting the waivers would not extend beyond May 2, and noted they’ve warned for months that this day was coming.
Pompeo pledged, however, that the U.S. will enforce sanctions in its quest to bring Iranian oil sales to zero. Foreign governments or companies that choose to do business with Iran risk the possibility of fines and being cut off from the U.S. market.
Those risks, Pompeo said, are “simply not going to be worth the benefits.“
He also painted the move as one aimed at ultimately helping the Iranian people rid themselves of their Islamist oppressors, despite the economic pain that the country, which has recently experienced devastating floods, is feeling as a result of U.S. economic pressure.
“I want the Iranian people to know that we are listening to them and standing with them,” the secretary of State said. He added that a decision to lift the sanctions will come once Iran‘s government stops its negative activities, such as its support for terrorism.
Since taking office, Trump has pursued a sanctions-heavy strategy aimed at undermining the Islamist leaders in Iran. As part of that, Trump pulled the United States out of the Iran nuclear deal, a pact that rolled back global economic sanctions on the country in exchange for limits to its nuclear program.
The Trump administration also recently designated Iran’s Islamic Revolutionary Guard Corps a foreign terrorist organization, marking the first time the U.S. had named an element of a foreign state as a terrorist entity.
The Iranian government has denounced the sanctions. But even as the economic penalties have badly hurt its economy, Tehran has stuck to its commitment under the nuclear deal to restrict its atomic activities in the hopes that European partners can help it weather the U.S. blows.
Trump’s decision Monday got applause from Republican lawmakers, some of whom had urged him not to extend the waivers he’d already granted. Some noted that the move against Iran could benefit U.S. workers in the energy industry.
Nearly two dozen Republican senators — several of whom represent the major oil-producing states of Texas, Louisiana, Oklahoma, Colorado, Wyoming and North Dakota — had sent a letter to Trump earlier this month asking him to end the sanctions waivers.
Bringing Iran oil exports to zero would hurt the regime “while promoting democracy and ushering in the era of American energy dominance,” the lawmakers wrote to Trump on April 4.
Sen. Ted Cruz of Texas followed up with a statement of his own Monday.
“This decision will deprive the Ayatollahs of billions of dollars that they would have spent undermining the security of the United States and our allies, building up Iran’s nuclear and ballistic missile programs, and financing global terrorism,” Cruz said, praising Trump.