Global oil markets were in a Trump-induced tizzy on Wednesday, a day after the US president signed a series of executive orders aimed at cutting off arch-rival Iran’s main source of foreign currency — oil.
For good measure, Trump threatened to “obliterate” the Islamic Republic of Iran should it acquire nuclear weapons, or worse, attempt to assassinate him.
In what was hailed as “a decisive move” to intensify economic pressure on Tehran, Trump’s order rescinded trade exemptions previously granted to countries importing Iranian oil including China, India and even allies like South Korea, Japan and even the EU.
The action was part of Trump’s renewed “maximum pressure” campaign designed to halt Iran’s nuclear ambitions by cutting its vital oil revenues “to zero.”
Ironically, the immediate aftermath of the announcement actually saw a dip in crude oil prices, influenced by an unexpected rise in US crude inventories. That in turn indicated softer demand in the world’s largest oil-consuming nation, amplifying concerns about slowing economic activity and trade uncertainties weighing on energy markets that could trigger a global recession.
Iran’s oil minister, meanwhile, announced that Iran is preparing to finalize a “significant” oil export agreement with an unnamed country in deference to Trump’s sanctions.
Trump’s executive order not only targets Iran’s oil exports but also seeks to prevent Tehran from obtaining nuclear weapons. Despite the stringent measures, Trump has not ruled out the possibility of meeting with Iran’s president, suggesting a potential diplomatic outlet to any crisis.
However, the reimposition of sanctions has already had negative effects on Iran’s economy. Following the announcement, Iran’s currency, the rial, plunged to a record low of 850,000 to the US dollar, raising concerns among ordinary Iranians about the potential for increased repression by hard-liners within the country.
If US sanctions significantly reduce Iranian exports — again — analysts said prices could spike back to levels seen in Trump’s last term, around $100.
Given the uncertainty surrounding Trump’s tariffs on Alberta’s oil, that may or may not be a good thing. Even without the surcharge, every dollar up or down is worth about $600 million to the public accounts.
After narrowing in recent months, Western Canadian Select (WCS) discounts have been widening in response to Trump’s tariffs threats on Canadian energy. On Wednesday they were about $14 less than US’ West Texas Intermediate, after having narrowed to around $8 in recent weeks.
Even before Trump implemented a 30-day pause on 10% tariffs on Canada’s oil sector, Premier Danielle Smith said her government would seek to diversify energy markets beyond the US.
“Canada can and must now come together in an unprecedented effort to preserve the livelihoods and futures of our people and expand our political and trade relationships across the globe. We can no longer afford to be so heavily reliant on one primary customer,” she said.