New U.S. sanctions against Iran could send oil prices higher, boosting Ecuador’s economy

Oct 3, 2018

Ecuador could be a big winner if U.S. President Donald Trump follows through on threats to boycott Iranian oil. Some energy analysts, in fact, are predicting a return of $100-a-barrel crude prices, not seen for six years.

U.S. President Donald Trump

On Monday, international oil prices closed above $75 a barrel based largely on the concerns of an Iranian boycott. Analysts point out, however, that there are other factors pushing prices higher. “We are moving into a market of lower inventories, lower reserve capacity and less protection for buyers,” says John Driscoll, chief strategist at JTD Energy Services in the U.S. “Prices of $100 a barrel within a few months appear a real likelihood.”

Like other analysts, Driscoll laughs off Trump’s recent demand that OPEC reduce oil prices, made two weeks ago. “We saw the impact of that – there was none – and it’s possible he will rethink the boycott based on its impact on the U.S. economy,” Driscoll says. “Trump apparently did not receive any market advice before announcing it and appears not to be aware that the U.S. is no longer the big kahuna in international markets that it once was. He is discovering that he has the power to drive prices higher but not to bring them down.”

Ecuador finance minister Richard Martinez

Trump says he wants the boycott in effect by November and says he will sanction companies that continue to buy oil from Iran afterward.

Driscoll predicts an Iranian boycott would reduce world oil supplies by 400,000 and 800,000 barrels a day.

Although it has made no mention of possible windfall profits, Ecuador’s government is quietly revising income projections higher based on prospects of higher prices. Ecuador’s 2018 budget was based on a per-barrel price of $41.92 although prices have averaged above $57 so far this year.

Minister of Finance Richard Martinez says he has started work on 2019 projections but says the next few weeks are critical to making a final determination. The government must submit a draft budget by November 1.

“It would be very good news for Ecuador if the U.S. imposes the boycott although no one wants to admit it publicly,” says Rodrigo Sanchez, a former marketing director for government-owned Petroecuador. “Prices in the $80 to $90 a barrel range, which seem very likely, will help reduce the national debt and prices of $100 a barrel could mean a new period of high prosperity for the country.”

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