Iran has reemerged as one the most potent geopolitical upside risks in the oil market as a consequence of the actions U.S. President Donald Trump has taken thus far, according to a team of strategists from RBC Capital Markets.
"The risk for a sanctions snapback is real given the certification and waiver structure of U.S. sanctions relief," the team, led by Helima Croft, said in a note published Friday.
Iran's oil industry, which represents the lifeblood of its economy, had suffered greatly by the cumulative impact of previous sanctions from the U.S. However, the Barack Obama administration agreed to lift these sanctions in January 2016 and signed a Joint Comprehensive Plan of Action (JCPOA) with Iran shortly before Trump became president.
Yet, tensions between the two countries appear to have escalated since as the White House imposed new sanctions on Iran on February 3, just two days after the Middle Eastern country carried out a ballistic missile test.
Trump's administration described the new penalties as "initial steps" and warned that Washington would no longer turn a "blind eye" to what it perceived as hostile actions from Tehran. Iran responded by cautioning the U.S. against any hostile actions.
Trump has yet to adopt a public position on the JCPOA agreement though RBC strategists argued that he may veto such a congressional bill given his criticism of Iran previously.
"Importantly, these efforts mark the clear return of Congress as a key driver of Iran policy, and while congressional legislation may be more akin to a scalpel than a sledgehammer, it remains a lethal weapon. Put simply, we believe that these bills bear very close watching," the strategists added.
Oil prices edged slightly higher on Friday as the dollar retreated from multi-week highs, however, prices were capped by unchanged Russian output for February, a sign of its weak compliance on a global deal to curb oversupply.
Brent crude traded at around $55.26 a barrel on Friday shortly before the European open, up 0.33 percent, while U.S. crude was around $52.78 a barrel, up 0.32 percent.