New US sanctions that will hit Iran’s energy industry and the fallout of Venezuela’s economic collapse have raised fears of significantly tighter global oil supplies, sending prices above $80 a barrel for the first time in nearly four years. Brent crude had been rising even before Donald Trump, US president, announced the US withdrawal from the nuclear deal and reimposed restrictions on Iranian oil exports earlier this month, with prices climbing more than 40 percent over the past year. But the prospect of fewer barrels from Iran and Venezuela has sent Brent, the international benchmark, up more than $5 a barrel in May alone.
Those pressures, on top of agreed output cuts by Opec and Russia and robust oil consumption spurred by a healthier global economy, have convinced some investors that prices could head even higher. “Geopolitics is certainly playing a role in sustaining this price rally, but the key developments represent genuine supply losses, not just risks that might not materialize,” said Richard Mallinson at consultancy Energy Aspects.
Venezuela’s oil supplies have fallen faster than many analysts had been expecting as political and economic crises take hold of the energy sector, with a series of court orders authorizing asset seizures and hindering exports. In addition, many investors had been counting on a revitalization of Iran’s oil industry, with the backing of western investment to upgrade its aging infrastructure, adding to global supplies.
But this week’s threat by Total, the French group that has led foreign groups back into Iran, to pull out of the country has made such a prospect unlikely. Iran needs more than $100bn in foreign investment and technology to expand its oil and gas industry over the long term. While prices could take a dip, Mr Mallinson said, the oil market is witnessing “a structural shift to higher prices” that will continue well into next year, not a temporary rise.