Will Oil Prices Spike As Trump Warns Trading Partners Not To Deal With Iran?

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This year, oil prices have been spiking and hitting prices which have not been seen since 2014. Throughout the year, although there has been price volatility as OPEC occasionally hinted it might increase output, oil prices have generally been trending higher.

Though this spike happened due to a multitude of reasons, it wouldn't be wrong to pinpoint the biggest contributor as President Donald Trump's sanctions on oil imports from Iran. This May, Trump declared that as a part of the U.S. withdrawal from the Iran nuclear deal, it will impose sanctions on the OPEC member and world's fifth biggest producer.

Then, in June, the U.S. State Department went as far as reinforcing the sanction and telling other nations that unless they stop importing oil from Iran, they will also face sanctions from the U.S. Many analysts said this will inevitably drive up oil prices as it would have a major effect on supply.

To intensify the matter, earlier today, Trump tweeted that "anyone doing business with Iran will NOT be doing business with the United States," claiming he is just asking for "WORLD PEACE." In response, the Iranian government said the US government had "turned their back on diplomacy."

This new tweet from Trump is another escalation from the statement made by the State Department in June. Then, the U.S. requested other nations to not import oil from Iran. Now, things are much broader than oil import; Trump doesn't want countries to do any business with Iran.

Though it is hard to determine how exactly this sanction will affect the Iranian economy, considering they have been suffering, this change surely will not play in favor of economic recovery there.

But how will this affect oil prices? Considering how in the past months oil prices have responded very sensitively to any types of news regarding inventories, there is a high possibility that prices will spike once again.

For example, on June 22, when OPEC and Russia met and promised to increase oil production by up to 1 million barrels a day, oil prices rallied because the increase was not as much as people had anticipated.

In addition, there has been a report of a decline in Saudi Arabia's oil production which, combined with Trump's tweet, made oil prices tick higher today.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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