The Trump administration’s goal of crushing Iran’s energy industry increases the risk of a temporary global shortage before the end of the year that could send oil prices spiking to $100 or more, analysts say.

The U.S. wants Iran’s oil revenue to fall to zero, as it moves to reinstate sanctions Nov. 4, and officials have been telling consuming companies and countries to stop all purchases. The Trump administration is aggressively pursuing a plan to keep the more than 2 million barrels a day Iran exports from reaching any paying customers within months.

“We could risk adding 20 to 25 percent to the price of oil if some of the messages coming from the State Department are on point," said Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch. "If the administration enforces compliance to zero imports from Iran we will likely have a very large spike in prices."

Brent crude, the international benchmark, was trading at just over $77 a barrel Tuesday. West Texas Intermediate futures rose above $75 briefly Tuesday, before falling back below $74 per barrel. That is the highest WTI has been since November, 2014.

The sanctions on Iranian oil and other Iranian businesses are being reinstated after President Donald Trump withdrew the U.S. from a deal between Iran and six countries that removed sanctions in exchange for an end to Iran’s nuclear efforts. However, Trump said the agreement was one-sided and would allow Iran to restart its nuclear program.

So far, the U.S. is acting alone to restore the sanctions, but it is wielding a hefty club — denying anyone who deals with Iran access to the U.S. financial system, meaning offenders can no longer do business with the U.S.

The last time Iran was sanctioned, about half its current oil exports of some 2.4 million barrels were removed from the market. This time, many energy analysts believed the sanctions would remove far less, maybe less than half the prior amount, but some analysts lately have raised their expectations given signs that many companies are complying with tough talk from the administration.

Morgan Stanley, for instance, now expects Iranian production to drop to 2.7 million barrels a day by the fourth quarter, with more than 1 million barrels taken off line. Some analysts said if even half of Iran's oil is removed from the market, the world supply would be too tight, raising concerns about how it will be made up. The only country with large spare capacity is Saudi Arabia, but it’s unclear how much it can tap quickly.

Trump this weekend created a stir in the oil market by saying in a tweet that King Salman bin Abduaziz Al Saud of Saudi Arabia agreed to tap the kingdom’s spare capacity and put 2 million barrels a day on the market.

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The White House later issued a statement, worded differently, saying the king affirmed Trump’s assessment of a deficit in the market. He also affirmed that the kingdom has a spare capacity of 2 million barrels, and it would use it when necessary and in coordination with partners.

Trump turned up the pressure even more on Saudi in a “Fox News” interview Sunday, when he said the kingdom is gaining from the U.S. exit from the nuclear deal. “Don’t forget the one negative to the Iran deal is that you lose a lot of oil, and they got to make up for it. And who is their big enemy? Iran. OK. You think of it. Iran is their big enemy, so they are going to have to do it,” Trump said. “And I have a very good relationship with the (Saudi) king and with the crown prince of Saudi Arabia and with the others around and they are going to have to put out more oil.”

On Tuesday, King Salman chaired a Saudi cabinet meeting, where it was reaffirmed that the kingdom was ready to use its spare capacity if needed.

At a briefing Monday, Brian Hook, director of policy at the State Department, said the U.S. wants zero Iranian oil on the market and "we are confident there is sufficient spare oil capacity."

Hook also said about 50 international companies have already said they will stop doing business with Iran, mostly in the financial and energy sector.

Some analysts say while a price spike is possible, the oil market is pricing in a fair amount of skepticism despite its recent run up. Analysts say if enough Iranian barrels are removed from the market, higher prices could coincide with the November midterm election.

The Trump administration could take action first by pressuring producers like Saudi, then by possibly releasing reserves, and finally by lowering its demands on Iran oil customers.

"If there's a real abandonment of Iranian oil," prices for Brent could reach $110 to $115, said John Kilduff of Again Capital. "I think its looking fairly likely for Q4 that we could see $85 to $100 for WTI. $105 at the most," he said. West Texas Intermediate crude, the U.S. benchmark, is slightly cheaper than Brent and was trading at about $73 Monday.

"If you are a market participant you are going to be positioning for possible price spikes due to intentional or unintentional supply losses," said Eric Lee, energy analyst at Citigroup.

The market is “pragmatic. if you take Iran’s oil exports down to zero and you assume there’s no leakage, what are you going to replace it with. There’s a certain amount to spare capacity in Saudi Arabia,” said Lee. “This is coming at a time where you have supply risks elsewhere.“ Lee said in addition to supply outages in Libya and Venezuela, a threat to the market is the summer hurricane season since the U.S. has become such a large exporter, with 3 million barrels a day hitting the world market earlier this month.

Saudi Arabia has never really put its spare capacity to the test, and some analysts say it may not be able to quickly reach the total 12.5 million barrels a day it says it can produce, if at all. If Saudi puts its spare capacity to work to make up for reduced Iranian barrels, there will be little oil left if there was an unforeseen or extended outage somewhere else in the world.

“It’s never been tested. We know they haven’t done it before. We also know we went to $146 a barrel [in 2008] and they didn’t do it then,” said Blanch.

“It’s hard to ignore the fact that inventories have really come down, and the administration is going to face a lot of pressure from a rising oil price. You can’t have it all," Blanch said. "That’s the risk of trying to do this with Iran. Every million barrels a day lost is an average $17 dollars” in the oil price.

Blanch said he expects only about 500,000 Iranian barrels to be removed, in part because of prices.

Analysts said one of the biggest hurdles is the tight time frame. If Saudi can ramp up, how quickly could it do so. It said it would produce 10.8 million barrels a day or more this summer. That is up from a level of about 10.3 million a month ago.

Saudi Arabia and Kuwait are in the process of restarting the neutral zone, which they both operate and shut down in 2014 due to low prices. Toyo Engineering of Japan said Monday that the Khafji and Hout oilfields in the neutral zone should resume output in 2019. Toyo was announcing renewal of its service agreement at the oilfields which it said have a maximum production rate is 350,000 barrels a day.

“Saudi has the ability to produce more. The question is how much. They could probably get to the 2 million, but it would probably be a stretch," said Rob Thummel, portfolio manager at Tortoise Capital. "It takes time to develop and we’re entering a period of accelerating demand and inventories at normal levels."

He said the world could draw inventories to make up the short fall while Saudi ramps up, including from the U.S. Strategic Petroleum Reserve.

The U.S. oil industry could also bump production and increase exports, but the U.S. has a shortage of pipeline infrastructure that will take more than a year to build out. "There’s probably enough supply in the world, we just need time to get it out,” Thummel said.

Michael Cohen, head of Barclays energy commodities research, said he is now expecting about 700,000 barrels of Iranian oil to come off the market, up from 500,000 barrels a day previously. That makes a potentially tighter situation, even with the 1 million barrels a day OPEC and Russia and other producers agreed to put on the market last month.

“We’ve said in our research if the perfect storm emerges, with Libyan output, Venezuela and Nigeria, and a dire Iran situation all emerge at the same time, we’re going to get a very constructive environment for oil prices, no matter what the Saudi spare capacity is,” said Cohen.

Morgan Stanley analysts said they expect that Iran's exports to Europe, Japan and South Korea would fall to minimal levels from about 1 million barrels a day. "We expect some loss of export volumes to India and other Asian offtakers, partly offset by possible greater exports to China," they wrote in a note. They expect Iran's production to reach 2.5 million barrels a day in mid 2019 from the current 3.8 million barrels a day.

They now expect the world to be undersupplied by 600,000 barrels a day in the second half of this year, and by 300,000 barrels next year.

Cohen said there is a scenario that would keep prices from spiking, and it's one where demand growth would slow down.

"I think the challenge right now is to see whether the warning signs on the global economy are sufficient to offset the warning signs on the supply front...If they are, then maybe we’ll get through this tight spot," he said.



