Iran oil ban: Can US producers make up for shortfall?
President Donald Trump’s decision to reinstate sanctions on Iran has sent oil prices higher on speculation that the move will remove some crude from the market.
Somewhere between 300,000 and 500,000 barrels of oil per day will be removed from the market because of the sanctions, Andrew Lebow, senior partner at Commodity Research Group, told FOX Business. The last time sanctions were imposed on Iran, about 1 million barrels of oil per day were removed from the market, Lebow added.
The reason less oil will be removed this time, according to Lebow, is that many countries will apply for waivers while China will most likely keep purchasing oil from Iran.
Iran’s total oil production is about 3.83 million barrels per day, according to S&P Global Market Intelligence. Most of that is shipped to China, India and South Korea.
Saudi Arabia already said it’s prepared to make up for the shortfall. But what about the U.S.?
For U.S. oil producers, capitalizing and making up for the shortfall may not be possible. While oil capacity has boomed in the country, particularly in the Permian Basin, the country could run into some logistical constraints.
America’s boom in oil production could have negative consequences, according to S&P Global Market Intelligence. The U.S. could run out of infrastructure to move oil from West Texas to the Gulf Coast within months, with Permian Basin producers saying they expect the oil production surge will overwhelm oil and natural gas pipelines by the end of the year. This prediction was made before the sanctions on Iran were announced.
Saudi Arabia is monitoring how the U.S. withdrawal from the Iran deal will affect oil supplies and is ready to offset any shortage of needed. But, a source familiar with the situation told Reuters, the kingdom will not act alone to fill the gap.