Opinions about the consequences of the U.S. pulling out of the Iran nuclear deal began flying around as soon as President Donald Trump announced the exit.

Many of the key points that pundits have made about Washington turning its back on the Joint Comprehensive Plan of Action have dealt with oil. That’s because the U.S. is likely to sanction Iranian oil exports again, as it did during the Obama administration.

Here are several short-term and long-term consequences of the U.S. about-face on the Iran deal:

Short-term consequences

  1. Iranian oil production and exports are expected to decline — but the drop will be gradual.
  2. The decrease will range from 200,000 to 1.5 million barrels a day.
  3. Demand for Iranian crude in China and India is likely to remain strong, while European, South Korean and Japanese buying is likely to be more cautious, for fear of offending Washington.
  4. While America’s allies observed the sanctions that the Obama administration imposed on Iran, support for any Trump administration sanctions is likely to be grudging. That’s because not only did Trump unilaterally scrap the Iran deal, but he did so over the ardent objections of America’s allies. 
  5. The U.S. pullout is unlikely to affect global oil prices in a sustained way. Two reasons are that OPEC has spare capacity and that the cartel’s leader, Saudi Arabia, has pledged to maintain market stability.

The price of crude did surge to $80 a barrel last week, but experts have suggested a number of factors at play, not just the U.S. pulling out of the Iran deal.

Last month, Iran finally reached the pre-sanction oil export levels that it was enjoying in 2012. One reason was the release of crude sitting in tankers it was using as floating storage containers. Another was that it had increased some of its refining capacity.  

Earlier last week, a news report surfaced that state-owned National Iranian Oil Company sold 2.88 million barrels per day of oil and gas condensates in April, with crude accounting for 2.62 million barrels per day. In January 2012, Iran was exporting about 2.5 million barrels a day.

Iranian officials are already asking Europe and China to maintain their support for the nuclear deal and reject any Trump administration call for broad new oil sanctions.

As an example, National Iranian Oil Company officials travelled to Beijing to ask executives of Sinopec's trading unit to continue buying Iranian crude. 

South Korea has already signaled that new sanctions may cause it short-term pain. It asked Washington for a waiver of any sanctions the U.S. imposes on Iranian oil imports, while its refineries seek alternative crude sources.

Long-term consequences

Iran faces a Herculean task in maintaining its long-term oil production in the face of a renewal of U.S. sanctions. That’s because any countries that defy Washington’s sanctions may face retaliation from the world’s largest economy. 

After the U.S. pullout announcement, Washington’s most important European allies—Britain, Germany and France—pledged to continue observing the Iran deal. But it is unclear what they will do if the U.S. reinstates stringent sanctions against Iran and threatens penalties against countries that fail to observe them. 

Oil and gas production

The sanctions relief that Iran obtained under the nuclear deal has benefitted it economically by allowing it to obtain oil export revenue. But the country has failed to attract much foreign investment to develop its vast oil and gas reserves.

And the U.S. pullout threatens to jeopardize the one major contract it signed. That contract with China National Petroleum Corporation and France’s Total involves developing the giant South Pars gas field.

Total, the only European company that signed an exploration and development agreement with Iran after the nuclear deal went into effect, says it will pull out of the project unless it "is granted a specific project waiver by U.S. authorities with the support of the French and European authorities.”

The German insurance giant Allianz and the Danish oil tanker company Maersk also indicated they will wind down their Iranian operations.

Refining capacity

Before the U.S. pullout announcement, Iran had been hoping for a major modernization of its refineries so it could export more crude. Last year, South Korea’s Export Import Bank agreed to provide Iran with $15 billion in refinery project financing. Most of the money would cover work of Korean companies Daelim, Daewoo and Hyundai Engineering and Construction.

These plans appear to be in jeopardy in the wake of the U.S. treasury department announcing what it calls terrorism-sponsorship-related sanctions against Iranian agencies and individuals. U.S. allies are concerned that these terrorism-related sanctions could foreshadow a wave of more general sanctions against Iran, as in the past.

Given the long lead times to develop gas fields, Iran will find it harder to compete with other exporters unless it obtains investments to ramp up its production now. Also, at a time when fossil fuel companies are improving their refining capabilities to maximize their profits, if Iran is unable to find refinery investment, it will lag behind.

The sanctions that Iran faced during the Obama administration were crippling. But it could be different this time. The impact of new U.S. sanctions will depend on how sweeping they are and how determined Washington is to impose them in the face of resistance from a number of allies.

Photo credit: ATTA KENARE/AFP/Getty Images