Global oil prices skyrocket to their most elevated since 2014 after US President Donald Trump reported the US was hauling out of nuclear deal with Iran.
Brent crude, a closely-watched international benchmark, shot up 3.1 per cent to more than $77 (£56.70) per barrel in London on Wednesday on the news that the White House would reimpose sanctions on Iran. West Texas Intermediate – a US benchmark – rose 2.7 per cent to $70.93.
Mr Trump’s controversial move, which has drawn criticism around the world, threatens to negatively impact Iran’s exports of millions of barrels of oil per day, the majority of which go to Asian countries including China, India and Japan. The new round of sanctions is due to take effect in November.
The US President has long described the 2015 multinational accord designed to ensure that Iran does not build nuclear weapons as the “worst deal ever”, claiming that the Middle Eastern nation is defying inspectors and continuing with its nuclear programme.
Mr Trump said on Tuesday that the US will reimpose the sanctions on Iranian petroleum exports which were in place in 2012.
Experts have said the move is unlikely to squeeze the Iranian economy to the same extent because, unlike in 2012, there is no international agreement on the need for sanctions.
The rest of the world’s major powers, as well as the nations which buy Iranian oil, believe Iran is complying with the nuclear deal. Despite this, markets have been nervous about the impact US sanctions could have.
Paul Donovan, global chief economist at UBS said: “As the Trans-Pacific Partnership demonstrated, a unilateral withdrawal from a multilateral deal does not necessarily mean the deal is over.
“The reaction of the oil price has been limited, but oil prices remain high.”
Consumer prices are likely to rise in line with the oil price but central banks will only react if that feeds through to wages, he said.
Barack Obama, who was US President when the deal officially known as the Joint Comprehensive Plan of Action (JCPOA), was struck said on Tuesday that Mr Trump’s decision to withdraw was “misguided”.
“I believe that the decision to put the JCPOA at risk without any Iranian violation of the deal is a serious mistake,” Mr Obama said.
The announcement has also hurt US companies including aerospace giant Boeing and its European competitor Airbus which will lose out on a $39bn deal to sell passenger jets to Iran.
Licences for the proposed sales will be revoked as a result of the new sanctions, US Treasury Secretary Steve Mnuchin said on Tuesday.
In a show of the strength of feeling against Mr Trump’s actions, Iranian MPs set fire to a US flag and chanted “death to America” during a session of parliament.