Iran Sanctions: 'Oil Shock Will Cause Big Damage to Global Economy' - Scholar

Sputnik discussed Trump's claims that there is enough oil to replace Iranian crude with Sami Hamdi, geopolitical risk consultant, and editor-in-chief of the International Interest.

Sputnik: Trump said that there is enough oil to replace Iranian crude, is that really the case? 

Sami Hamdi: I don't actually think that there's enough crude that can actually be put online very soon in order to counteract the loss of the Iranian oil on the market. I think Donald Trump is basing his statements on false promises that have been made from the UAE and Saudi Arabia who, in their lobbying efforts to isolate Iran, have promised Donald Trump that they will be able to supply further oil onto the market.

However, since these promises have been made, things have changed. We have to remember that when experts are saying that the oil shock will cause big damage to the global economy, the reason why they're saying it is because economies are already on edge, if we're looking at Italy, if we're looking at Venezuela, if we're looking at the Eurozone, if we're out looking at Brexit, if we are looking at all these other different economies around the world that are already on the edge, on the precipice of an economic crisis and economic recession — without even considering whether the oil prices will go up, which will only further mire these economies into even worse problems.

READ MORE: Iran: US 'Lying to the World', Unable to Halt Our Oil Exports

I think one of the biggest issues is that even if there is some sort of oil that can be put online in order to bring the prices down, at least steady the prices, this cannot be put up in a day or two, this needs at least six months, maybe a year, and even then it's very questionable how much oil can actually be flooded into the market.

Not only that, but when you see that there's antagonism between Saudi Arabia and the Western world, we see Saudi Arabia now trying to weaponize its economy, let's remember Turki Aldakhil's article, the head of Al Arabiya channel during the Khashoggi case, he set out a series of measures that Saudi Arabia could take in order to punish the world for the way, that he perceived, is attacking Mohammed bin Salman over his role, or perceived role, or alleged role, in the Khashoggi case. Part of these threats was weaponizing the oil, making the oil price go higher and higher in order to handcuff the Western governments.

We see even the Saudi attitude has changed, it's no longer particularly amenable to Donald Trump, we don't know if it will fulfill its promises, we see the US now trying to apply pressure on Saudi Arabia, almost trying to bring it in line with James Mattis's statement on Yemen when he said there has to be a cease-fire. So the simple answer to your question is: it's very unclear whether there is this oil available, and even if it is, it will take a long time for it to come online, to come onto the market.

Sputnik: And yet what countries would we name that could possibly replace Iranian crude on the global market?

Sami Hamdi: I think the leading country would be Saudi Arabia. Saudi Arabia is the one that has made the promises, Saudi Arabia is the country on which Donald Trump has relied on with regards to supplementing any damage that might be caused by the Iranian sanctions. Donald Trump, in his tweets, in the build-up to announcing his withdrawal from the Iran deal, said on Twitter that he had spoken to King Salman and King Salman had promised to help reduce oil prices.

During the OPEC meeting in Algiers, it was well known that Saudi Arabia was the country designated by the US to try to convince everybody to bring the oil prices down, even though it would not be in the interest of these OPEC nations, who are suffering economic crisis and who would prefer a higher oil price in order to have more revenue to tackle some of these economic crises.

So Saudi Arabia is the leading one. The UAE is a big part; UAE tends to say, yes, we have some sort of oil, but I always describe the UAE as hiding behind Saudi Arabia on these issues; it knows that the pressure will always be on Saudi Arabia and not necessarily on the UAE. In terms of the other countries, Venezuela is a failed state and Nigeria has elections coming up, which looks to be a bitter fight between the different candidates, that will affect its oil industry. I think if we look at the different countries, the focus is on Saudi Arabia.

READ MORE: Saudi Arabia, Russia to Extend Agreement on Preserving Oil Market Stability

Sputnik: Although we don't know if there's enough oil to actually to replace the Iranian crude; in any case, the concerns that there will be an oil supply shock are justified and it will be practically impossible to achieve this without slowing down the economy.

Sami Hamdi: Yes, exactly. The problem is not whether people don't know whether there's enough, people don't know if enough can be put into the market. So the problem is in order to get the oil out, it's not as simple as opening a tap and suddenly the oil goes; this oil needs to be put online it, there needs to be a process, there needs to be a refining of the oil, there needs to be an increased capacity in getting that oil out. What people don't know is not whether there's enough oil available in order to refine it and then put it onto the market.

Can we get enough in the time needed to avoid an oil shock? My opinion is we don't have enough time because the oil sanctions are coming in now, the sanctions are being implemented very soon, we don't have enough time to avoid an oil shock. Trump did not give enough time for anybody to even consider whether there could be a replacement. I'm sure that the oil exists, but the shock will be so hard that even if we do get this oil online later on, even if the countries do get the oil online, later on, this will not stave off the economic crisis that will have been caused by this oil shock, so this is the point.

I think with regards to the issues, in terms of putting the oil up on the market and in terms of the implications that it would particularly have, the global economies are looking at an economic crisis now, and I think Donald Trump himself may feel betrayed or may have felt that he was sold false promises before he announced that he would withdraw from the Iran deal.

Views and opinions expressed in the article are those of Sami Hamdi and dod not necessarily reflect those of Sputnik.