Having decided to abandon the P5+1 nuclear deal with Iran, the Trump Administration has shifted toward a policy of regime-change. The main focus of this is re imposition of sanctions on Iran, particularly an effort to drive oil exports to zero.

This wouldn’t be consequence-free, however. Even if the US is only able to cut Iran’s oil exports in half, it could have a devastating impact on the global economy, fueling a major surge in global oil prices. Supply is already a bit tight, and taking Iranian supply off the table would make things far worse.

Commodities analysts are projecting a 20%-25% spike in the price of oil, which is already at high levels. This could easily be worse, as the price of oil tends to be particularly sensitive to momentum trades after major swings.

Iran’s increased exports are a big part of why the price of oil hasn’t gotten much higher. The State Department’s threats to China and India intends to drive Iran exports completely off the market. India has said they intend to comply, and even if China doesn’t, it’s not clear they’ll be buying enough to prevent these sanctions from being a major challenge to the markets.

With some concerns about the fallout of this, the US is backing off State Department claims that no waivers would be given. They are now saying Iran oil waivers will be handled on a case-by-case basis.

The Trump Administration is shrugging off this fairly glaring flaw with their plan, with President Trump demanding Saudi Arabia simply produce far more oil to wholly replace Iran on the market. The Saudis already anticipate record production, and that’s before trying to make up for any Iran shortfalls on the market.

There are strong economic incentives for the Saudis not to follow the Trump plan. The Saudi state oil company has been trying to make up for Libya and Venezuela’s oil production cuts, but could stand to make a lot of money with record production combined with a price surge. Even if the Saudis could totally replace Iran, which they probably can’t, they have ample reason not to.

This likely means the Saudis making a token effort to keep Trump semi-placated, the price of oil surging as US sanctions take effect, and growing efforts by Iran to keep getting as much of their own oil on the market as they can.

Ironically, the higher prices could well mean that a cut to Iran exports might not do much economic harm to them. The more prices increase, the more incentive the world has to buy from Iran over US objections. This will cap US sanctions efforts in the near-term.