LONDON • Oil prices rose more than 3 per cent yesterday, hitting 31/2-year highs, after US President Donald Trump abandoned a nuclear deal with Iran and announced the "highest level" of sanctions against the Organisation of the Petroleum Exporting Countries (Opec) member.
Ignoring pleas by allies, Mr Trump on Tuesday pulled out of an international agreement with Iran that was arrived at in late 2015, raising the risk of conflict in the Middle East and casting uncertainty over global oil supplies at a time when the crude market is already tight.
Brent crude oil touched its highest since November 2014 at US$77.20 a barrel. The benchmark contract was up US$1.80 a barrel, or 2.4 per cent, at US$76.65 by 1050 GMT.
US light crude was up US$1.70 a barrel, or almost 2.5 per cent, at US$70.76, near highs also last seen in late 2014.
In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their strongest in dollar terms since they were launched.
"Iran's exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite," said Mr Sukrit Vijayakar, director of energy consultancy Trifecta.
Mr Trump's announcement also left little hope that Boeing and Airbus will be able to consummate US$40 billion (S$54 billion) in aircraft deals struck by Iranian carriers. Both firms' export licences to Iran will be revoked, Treasury Secretary Steven Mnuchin said.
Iran re-emerged as a major oil exporter in 2016 after international sanctions against it were lifted in return for curbs on its nuclear programme, with its April exports standing above 2.6 million barrels per day (bpd).
That made Iran the third-biggest exporter of crude within Opec, behind Saudi Arabia and Iraq.
Walking away from the deal means the United States will probably reimpose sanctions against Iran after 180 days, unless another agreement is reached before then.
Analysts' estimates of the possible reduction in Iranian crude supplies as a result of any new US sanctions range from as little as 200,000 bpd to as much as 1 million bpd, with most impact from next year, as sanctions take time to impose.
Several refiners in Asia said yesterday they were seeking alternatives to Iranian supplies.
A number of countries have already cut their reliance on Iranian oil, as well as other "traditional" sources of supply, due to a surge in cheaper US crude exports.
Saudi Arabia said it would work with other producers to lessen the impact of any shortage in oil supplies. The country has been leading efforts since last year to withhold production to prop up prices.