Oil prices rose more than 2 percent on Wednesday, with Brent hitting a 3-1/2-year high, after Donald Trump, U.S. president announced pulling the United States out of an international nuclear deal with Iran on Tuesday, likely curbing the OPEC member’s crude exports in an already tight market.
Trump said he will impose “the highest level of economic sanctions” on Iran, violating an international nuclear agreement and a UN resolution, breaking decisively with US allies in Europe, and potentially triggering a new crisis in the Gulf, and casting uncertainty over global oil supplies.
Brent crude oil futures rose to a session high of $76.75 per barrel, their highest since November 2014. They were still at $76.73 per barrel at 0344 GMT, up $1.88, or 2.5 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up $1.61 per barrel, or 2.3 percent, at $70.67 a barrel, close to highs also last seen in late 2014.
In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their highest in dollar terms since they were launched in late May, at around $73.25 per barrel.
“The big event of the night was President Trump’s cancelling of the nuclear deal made with Iran back in 2015. Sanctions will, therefore (likely) be re-imposed on Iran, which will ultimately affect Iran’s oil exports,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
Iran re-emerged as a major oil exporter in 2016 after international sanctions against it were lifted in return for curbs on Iran’s nuclear programme, with its April exports standing above 2.6 million barrels per day (bpd).
This makes Iran the third biggest exporter of crude within the Organization of the Petroleum Exporting Countries (OPEC), behind Saudi Arabia and Iraq.
Walking away from the deal means that the United States will likely re-impose sanctions against Iran after 180 days, unless some other agreement is reached before then.
ANZ bank said Trump’s decision “puts into place a scenario that could see the crude oil market tighten significantly in H2 2018 and into next year.”