The United States has stepped up pressure on Tehran by announcing an end to the waivers that have allowed major oil importing nations to buy from Iran, in a move that raises questions about the ability of other oil producers to fill the gap.

As a result Brent crude, the international oil price benchmark, has risen above $74 a barrel for the first time in six months.

Can the U.S. really reduce Iran’s oil exports to zero?
Iran has been producing some 2.5 million barrels (MMbbl/d) of oil a day and has exported 1 MMbbl/d to 1.3 MMbbl/d for the past five months, according to estimates by consultancy FGE Energy. Tanker-tracking websites say Iran has been secretly exporting even more—some 1.9 MMbbl/d.
Most has gone to five major buyers—India, China, South Korea, Japan and Turkey.

“China has already indicated its opposition to the U.S. implementation of unilateral sanctions, so it is probably unlikely to see Iranian exports to fall to zero,” said Giovanni Staunovo at UBS Wealth Management.

But the others could comply, meaning a drop below 1 MMbbl/d was expected, he added.

Without any legal means to make purchases, there is a good chance the U.S. can erode Iran’s sales significantly. But given that Iran has been smuggling 100,000 to 300,000 bbl/d out of the country in recent months, this amount at the very least is likely to continue to reach the international market.

Is the market prepared to meet the shortfall?
OPEC producers and their allies outside the cartel have curbed production since January to bring the oil market into balance after supplies swelled at the end of 2018, so there is room for manoeuvre.

The U.S. said it had spoken to Saudi Arabia and the UAE to ensure there is “sufficient supply”.

According to the U.S. energy department, rising U.S. production together with OPEC’s ability to produce more means there is adequate spare capacity. Saudi Arabia is producing below 10 MMbbl/d but officials say it is able to consistently pump 1 MMbbl/d more than this.

“This [energy department] assessment is giving the Trump administration a false sense of security,” said analysts at Energy Aspects, a consultancy.

Not only could there be a mismatch in the number of barrels needed, but also in the different crude grades required by the market, Energy Aspects said.

The potential for supply disruption in troubled countries such as Libya and Venezuela is an additional risk.

How will the rest of OPEC react?
Saudi Arabia will have to tread carefully with its OPEC peers and allies outside the cartel.

Russia, which formed an oil alliance with OPEC last year and has sought to step up production in recent months, might welcome action to raise supplies. But Venezuela, which like Iran is under U.S. sanctions, is less likely to agree with any production policy that aids US foreign policy goals.

The kingdom—OPEC’s largest producer—stepped up output last year because it expected that the Trump administration would reimpose sanctions on Iran, but the U.S. maintained the waivers for some buyers. Not only did the kingdom feel hard done by, but it also had to face the ire of fellow Opec members.

This time, people familiar with Saudi Arabia’s energy policy say any increase in the kingdom’s production will only occur once Iranian volumes fall. Saudi Arabia is going to be more cautious and will not increase output unilaterally, they said.

The Saudi government said in a statement it would “coordinate with fellow oil producers to ensure adequate supplies”.

What does this mean for oil prices?
The U.S. administration played down the risk that oil prices would soar. An official told reporters on Monday: “The market is well supplied, and we are confident it will continue to be well supplied.”

Energy sector analysts question how tight the oil market could become in the short term, particularly if big producers use up their spare capacity buffers, hindering their ability to pump more in the event of further supply disruptions.

“There are huge risks to supply around the world,” said Gary Ross, chief executive of Black Gold Investors and a longtime oil market watcher. “The world will have a sliver of production capacity to deal with anything unexpected [but] there are more sanctions coming in Venezuela, the situation in Nigeria is precarious. Libya too is uncertain.”

Brent crude is likely to reach $75/bbl to 80/bbl but it could easily surpass this level, Ross said.

Could it hit the U.S. economy?

The impact of oil price changes on U.S. economic growth has been muted by the shale boom of the past decade, which cut the country’s net oil imports sharply. Any impact on consumption via rising fuel costs will be offset by the boost it offers to the oil industry.

However rising fuel prices will raise concern among U.S. consumers, especially with the peak summer driving season approaching.

The average price of petrol has already risen to $2.828 per gallon last week, its highest level since last October, and up 56 cents a gallon since the end of 2018. If it went up another 10 cents a gallon, it would hit its highest level for five years.

President Donald Trump has repeatedly complained about OPEC keeping the price of oil high, but if fuel does jump sharply higher over the next few months, the administration could draw some of the blame.