Bass, Berry & Sims attorney Thad McBride was quoted in a May 1 article published by Shale Magazine examining how the recent escalation of violence between Israel and Iran has raised concerns about the global supply of crude oil. According to the article, after Israel struck back at Iran in response to Tehran launching over 100 missiles and drones against them, oil prices surged briefly on April 19. However, after Iranian officials downplayed Israel’s retaliatory strike and talks of an Israeli-Hamas ceasefire percolate, Brent Crude futures dropped.

President Biden signed the National Security Package into law April 24, which includes new Iran sanctions measures and could influence China to reduce its reliance on Iranian oil. While this latest U.S. sanctions legislation may not immediately disrupt the oil trade, the article suggested that it could serve as a tool to influence China.

“Access to the U.S. financial system, including through the use of dollar-denominated transactions, continues to be important to most major banks and other financial institutions, even in China. The threat to Chinese actors of being blocked from that access may be potent,” Thad explained. “We have seen, at least anecdotally, that Chinese banks are reluctant to engage in transactions with Russia even when those transactions may be legally permissible under U.S. law, given the threat of U.S. sanctions. There could be a similar impact with respect to transactions involving Iranian oil.”

The new legislation also requires the executive branch to report on the implementation of the measures after 180 days, but there remain questions about how measures will be implemented, especially because the legislation includes a waiver if entities have ceased their trade or are taking steps to reduce their involvement.

“Many non-U.S. financial institutions are so wary of U.S. sanctions that they will refuse to engage in transactions with Russia (or Iran) even when the transaction is permissible under U.S. sanctions,” Thad noted. “The waiver provision is broad. It gives the president discretion to assess how and when sanctions measures should be imposed. It does not mean that the president will not decide to impose sanctions. It simply provides flexibility to apply sanctions or not based on the totality of circumstances as opposed to under a specific black-or-white trigger.”

The full article, “Will Iranian Sanctions Tamper Oil Price Volatility?,” was published by Shale Magazine on May 1 and is available online.