Mr Trump is likely to get his way. The evidence so far is that not even China National Petroleum Corporation and Sinopec dare defy Washington. China's giant refiners have said that they will stop buying Iranian exports after the sanctions deadline passes on Sunday. So has India's Reliance. The Europeans are pulling out. Total has suspended all Iranian operations. ENI is winding down purchases. Spare capacity near record low The US will pay a strategic price for Donald Trump's promiscuous misuse of financial hegemony. But right now no serious company can risk being shut out of the US capital markets and the dollarised world payments system. It is too dangerous.

In practical terms, the spare capacity of global oil producers will fall below 1 per cent by early next year for the first time in the history of the post-war energy markets. This is lower than during the Opec shock of 1979, and lower than in July 2008 when Chinese demand pushed Brent to $US147 a barrel. Risky business: Donald Trump's hardcore stance against Iran could have dire consequences for the world economy. Credit:AP "All this works perfectly so long as there are no supply problems anywhere. But Libya and Nigeria are political wild cards, and Venezuela is collapsing," said Helima Croft from RBC Capital Markets. "You have already had three Saudi tankers attacked in the Red Sea by (Iranian-backed) Houthis and one was sunk. You can't rule anything out," said Mrs Croft, a former Mid-East analyst for the US Central Intelligence Agency. On Sunday, Iran's leader Hassan Rouhani threatened to close the Strait of Hormuz, the choke point for a fifth of world crude and for British shipments of liquefied natural gas from Qatar.

As tensions were rising between the two counties, Mr Trump tweeted the following in capital letters earlier this year: The Iranians replied that they had been around for millennia and seen empires come and go, including "more civilised" ones. 'Squeezing every last barrel' Jean-Louis Le Mee and Will Smith, from Westbeck Energy, said Saudi Arabia, Opec, and Russia cannot lift output much further to plug the Iranian deficit even if they bend every sinew. "Every producer globally is currently squeezing every last barrel," they said. Westbeck is betting on a "furious rally" in November and December, culminating in a $US150 crescendo next year.

Saudi oil minister Khalid al-Falih confirmed that the Opec-Russia cartel is in "produce as much as you can mode" and that crude prices could quickly jump to $US100. "Nobody has a clue what Iranian exports will be. There are potential declines in Libya, Nigeria, Mexico and Venezuela. Our spare capacities for the globe are much less today than they were in the past, and we are using a significant part of them," he told Tass. Mr Al-Falih says the kingdom can ramp up output from 10.7 million to 12million barrels a day (b/d). "This I can assure. But if 3m b/d disappears, we cannot cover this volume," he said. Iranian President Hassan Rouhani on Sunday tried to downplay the US sanctions targeting the country's vital oil and gas sector. Credit:Iranian Presidency Office/AP Few oil watchers believe the Saudis can in fact reach 12 million barrels a day in any meaningful time horizon. S&P Global Platts said the Saudis are already running flat out. There is a 500,000 barrels a day field waiting in the Saudi-Kuwait "neutral zone", this is caught up in a dispute over Kuwait's diplomatic tilt towards Turkey. What seems clear is that Washington will take a draconian line on exemptions for buyers of Iranian crude, with limited waivers and phase-out periods even for allies.

"Our goal remains getting countries importing oil from Iran to zero as quickly as possible," said Brian Hook, head of the state department's Iran action group. Risks obscured in the October rout Loading Total compliance is impossible but a loss of 1.7 million barrels a day by January is on the cards. S&P Global estimates exports will be down by 1.3 million barrels a day as soon as next month. Risks have been obscured over recent weeks by market noise and a jump in Iranian shipments before the deadline. Brent has been caught in the undertow of the October equity rout, dropping 13 per cent to $US76. Hedge funds have been liquidating "long'" positions on the derivatives markets, accelerating the sell-off.

Oil balance is always a complex calculus of shifting supply and demand. Economic slowdowns can deflate prices fast. "The oil market is adequately supplied for now," said the International Energy Agency in its latest monthly report.Yet the IEA says that most of the 2.6 million barrels a day rise in output over the last year is due to Opec and Russia eating into spare capacity. This is "straining parts of the system to the limit". The agency says fresh supply of 5.7 million barrels a day is needed each year just to keep up with the natural decline of old wells. Oil cycles have the power and predictability of tidal flows. Investment in upstream oil and gas peaked at $US750 billion in 2014 before the price crash. It touched bottom at $US460 billion in 2016 and has yet to recover. This has stored up trouble. "We believe big declines in non-Opec conventional production are about to re-emerge as a huge issue," said consultants Goehring & Rozencwajg. The energy intensity of the world economy has halved since the Opec crises of the Seventies. Yet oil can still cause havoc. The spike of July 2008 was a deflationary shock of the first order. It drained demand from the US, European, and East Asian economies, and triggered the collapse of an over-leveraged financial system that had become dangerously unstable. The system is scarcely safer today. The Daily Telegraph, London