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The Iran embargo and US voters

by Kerem Alkin

Nov 10, 2018 - 12:00 am GMT+3
by Kerem Alkin Nov 10, 2018 12:00 am

Prestigious research institutions in the U.S. point out that 68 percent of American voters are highly sensitive to the price of gasoline. This is why it is very important, especially for President Donald Trump and the Republican Party, that an assurance is given to U.S. voters that the gallon price of gasoline will not exceed the $3 threshold in the short and medium term. It is quite meaningful that, President Trump, while stating that they are preparing a comprehensive and rigid embargo package for Iran, indicated that they are refraining from an embargo that would completely reset oil production to prevent global crude oil prices from escalating. The price of crude oil, which had even been below $38 in the beginning of 2016, has decreased the gallon price of gasoline in the U.S. to $1.75. However, from April 2017 to October 2018, the money U.S. citizens spend per month on gasoline increased by $4.4 billion.

Even though the "globalist" structure that has enveloped Washington for the last 30 years sees the right to conduct any political or military operations in any corner of the world through the U.S. Department of State-Pentagon-CIA-U.S. Treasury Department quartet, the White House and the ruling party will lose the elections the second they cannot manage gas prices and unemployment. This is why eight countries, including Turkey, were exempted from the embargo for six months so that oil prices do not rise. Major European Union countries, starting with France and Germany, are covered by the embargo and have announced that they will not comply. Turkey is seeing the results of its astute and determined stance, having managed the cases of both pastor Andrew Brunson and the Khashoggi murder very well, at the level of international diplomacy, with President Recep Tayyip Erdoğan's strong leadership.

President Trump is aware of the risk of inflation caused by the global trade war he triggered and the possible repercussions of this risk on the U.S. economy, as well as the fact that this may force the U.S. Federal Reserve towards a new rate hike. Therefore, for inflationary pressure in the U.S. economy to not increase, the Iranian embargo must not be turned into a process that will raise global oil prices in the short and medium term. As to the attitude of Organization of Petroleum Exporting Countries (OPEC) member countries, we will observe how they will act.

Gas at $75 in 2019

While discussions and assessments of the Iranian embargo and the course of global oil prices remain fresh, let us discuss forecasts for 2019 in particular. Oil prices declined by 10 percent in October alone following President Trump's stern reaction to OPEC on Sept. 20. Trump is aware that global inflation will rise due to the global trade war he escalated over the last year. Since additional taxes on U.S. imports would naturally create inflationary pressure, Trump is trying to offset this pressure by easing global oil prices and allowing the sale of fuel to American citizens at reasonable prices.

In this context, we need to evaluate the U.S. decision that eight countries will be exempted from Iran sanctions for a certain period of time. By letting countries that have shown sensitivity to the expectations of the United States, in other words, countries that have decreased oil imports from Iran, continue importing oil for some more time, the U.S. has prevented global oil prices from rising because of the Iranian embargo for now. Meanwhile, another reason for the U.S. to adopt a smooth transitional embargo on Iran could be to make Saudi Arabia, shocked by the "global recklessness" scandal caused by the murder of Khashoggi, produce more oil and close the supply gap caused by Iranian sanctions.

The U.S. Department of Energy has estimated the average global oil price for 2018 as $74 and for 2019 as $75. We should not forget that on Jan. 20, 2016, the price of a barrel of oil was $26.55, a 13-year low before coming up to today's levels. Commodity experts are divided in two between estimates of oil prices falling to $56 or rising to $85 in 2019.

About the author
Kerem Alkin is an economist, professor at Istanbul Medipol University. He currently serves as the Turkish Permanent Representative to the Organisation for Economic Co-operation and Development (OECD).
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