IEEJ：August 2018 ｃ○ IEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (388)August 9, 2018

President Trump Shaking World with the Iran Sanctions and Trade WarKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
On August 7, the United States revived the first tranche of its economic sanctions on Iranfollowing its announcement to withdraw from the Joint Comprehensive Plan of Action (JCPOA),
known as the Iran nuclear deal. On the previous day, U.S. President Donald Trump signed anexecutive order for the revival. The first batch of the Iran economic sanctions cover auto-relatedtransactions, aluminum and precious metal trade and the purchase of U.S. banknotes. Businesses that
conduct such transactions with Iran would be subjected to U.S. economic sanctions.
The second tranche of U.S. economic sanctions, which would be more damaging for Iran, is set
to come on November 4, targeting the oil and energy sector vital to the Iranian economy. It is
important for the United States to have actually taken the first step which can pave the way toward
the more damaging sanctions.
On the same day, the Trump administration announced to invoke the second tranche ofadditional tariffs on Chinese products on August 23 over China’s intellectual property infringement.
The first tranche of such tariffs came on July 6, imposing 25% additional tariffs on 818 categories ofChinese products worth $36 billion, including automobiles, industrial robots and electronic devices.
Under the second tranche, Washington will levy additional 25% tariffs on 279 categories of Chinese
products worth $16 billion, including semiconductors, electronic devices and plastic products. China
refused to back down, vowing to take a retaliatory measure of a similar magnitude. The U.S.-China
trade war is escalating.
The Trump administration’s Iran economic sanctions and trade war represent the largest factors
shaking the international situation at present. The Iran economic sanctions have deepened theuncertainties and confusion of the Middle Eastern situation, destabilizing the international oil
situation and crude oil prices. The economic sanctions caused a harsh Iranian reaction in which evenmoderate Iranian President Hassan Rouhani warned that the United States would regret threatening
Iran. Economic and business deterioration under the U.S. economic sanctions and the Iranian rial’s
rapid depreciation could make the Iranian political situation more difficult, paving the way forhardliners to rise in Iran.
Regarding the oil and energy sector sanctions that would be the most significant and have greatimpacts, the Trump administration has asked major countries to cut oil imports from Iran to zero,
representing a severer-than-expected situation. In response, Iran has mentioned the blockade of key1

IEEJ：August 2018 ｃ○ IEEJ 2018chokepoints including the Hormuz Strait, raising tensions in the Middle East.
While China, the largest crude oil importer from Iran, has indicated a plan to continue taking
delivery of Iranian crude oil, how far Iranian crude oil exports would decline toward November’s
implementation of the second tranche of U.S. Iranian sanctions is still uncertain. Depending on thedecline, the supply-demand balance in the international oil market could be seriously affected. Evenif Saudi Arabia and some other countries increase oil production to cover the drop in Iranian exports,
Saudi Arabia’s surplus production capacity as a supply buffer may fall, leading the market to become
vulnerable to growing geopolitical risks.
The Iran sanctions could widen the United States’ rift with Europe willing to maintain the Irannuclear deal. While U.S.-Europe tensions may grow over trade disputes as well as the Iran sanctions,a decline in U.S. and European influence or presence may add fuel to the Middle Eastern confusion.
Russia and China could increase their influence on the Middle East in a manner to fill a power
vacuum, complicating the Middle Eastern situation further.
U.S.-China trade war tensions have been growing on the exchange of retaliatory measures,indicating no sign of compromise toward a solution. On August 8, China’s Commerce Ministryvowed to levy additional 25% tariffs on 333 categories of U.S. products worth $16 billion from
August 23 to counter the United States’ second tranche of additional tariffs, demonstrating anew that
China would not back down over the trade issue. The number of categories increased to 333 from
114 as announced by the Chinese government in June, with crude oil dropped from the original listof products subjected to the additional tariffs.
Such exchange of high tariffs could dampen the global economy, affecting both the U.S. andChinese economies. Nevertheless, President Trump cannot put an end to the game of chicken
reportedly because of this autumn’s midterm congressional election in his country that has initiatedthe trade war. Given that the trade war and Iran economic sanctions are in line with commitments
Trump made during his presidential election campaigns, he apparently gives priority to consolidating
his supporters who contributed to his victory in the presidential election. He may have the nextpresidential election as well as the midterm election in mind. At least until the end of the midterm
election, President Trump may remain unshaken, retaining his tough stance on the trade war and Iraneconomic sanctions.
The United States had been the protector of global order and the power for global stability. At
present, however, U.S. actions have been central destabilizers amid changes in U.S. domestic andinternational situations, symbolized by the Iran economic sanctions and the trade war.
The global economy, the international oil market and crude oil prices will remain sensitive tothese moves. On August 7 when news reports came on the revival of the first tranche of Iraneconomic sanctions, the key West Texas Intermediate crude oil futures price rose further to $69.17
per barrel, approaching the $70/bbl level. On August 8, however, the price plunged by $2.23/bbl to$66.94/bbl as the oil supply-demand balance was expected to loosen due to economic deterioration
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IEEJ：August 2018 ｃ○ IEEJ 2018
amid the escalating trade war and an oil inventory report by the U.S. Energy Information
Administration. The crude oil market is likely to remain nervous and volatile in response to U.S.
moves. Moves of the United States and its Trump administration shaking international politics, theglobal economy and the energy situation will continue to attract much attention.

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