The Iran Wildcard
Did the Saudis come to some type of an arrangement behind the scenes with the Trump administration in exchange for harsher sanctions on Iran?
On April 3rd, the Liberation Day, OPEC+ brought forward 3-months of production increase for May just as the US announced reciprocal tariffs on the world. The timing made everyone believe that it was 1) political and 2) to send a message.
The combination of the two sent WTI sharply lower, and with prices now trading at $60/bbl, US shale's slowdown is all but inevitable.
The timing of the announcement coupled with the Trump tariff policy made a lot of energy specialists reminisce of March 2020 when the Saudis declared an oil price war just at the peak of COVID-19.
But I think it's closer to 2018 when Trump promised to sanction Iran in exchange for higher production. And unlike 2018, the Saudis appear to be taking a slower-than-expected approach.
In 2018, Saudis promised to increase production by 1 million b/d in June in exchange for sanctions on Iran. Following a brief oil price spike above $80/bbl Brent, Trump reneged on his arrangement with the Saudis and decided to wait 6-more months (for more calm) before implementing the sanctions.
The Saudis have learned their lesson and this time around, the increase is very gradual (despite the 3-month forward increase).
This is largely because Iran's crude exports have remained unaffected since Trump took office. We saw news come out today that more tankers are being sanctioned, but this won't have much of an impact on Iran's crude export. Experts in the energy business understand that sanctions seldom work. Just look at Russian crude exports, how did the sanctions imposed in 2022 workout?
But there's an interesting dynamic being played here. As long as oil prices remain around $60/bbl, the Trump administration will feel more emboldened to slam Iran's crude exports. Whether that's through more sanction enforcement or outright military intervention, all options are on the table.