On Sunday demonstrations across Iran were organized by the government to commemorate the 39th anniversary of revolutionary guards storming the US embassy and to protest the strongest-ever US sanctions against the country. The IMF predicts that the sanctions will shave close to 3.6 percent of the country’s GDP in 2019. It is counter intuitive that the oil price did not move on the day sanctions were introduced. What happened? October had seen a huge decline in oil prices. Brent crude slid close to 16 percent in October from $87 at the start of the month to around $73 at the end. Iran sanctions came into effect on Monday and the oil price did not move significantly. Markets opened just shy of the $73 mark for Brent in early Asian trading. The reasons were manifold: Volatile stock markets, the threat of looming trade wars and Italian budgetary woes all dampened global economic growth prospects. At the same time OPEC+ (the 15 OPEC nations and 10 non-OPEC countries who collaborate to limit production) started pumping more oil than in a long time. Saudi Arabia also vowed to pump enough barrels to offset the missing Iranian production on global oil markets. When it became clear that the US would grant several countries time-limited waivers to adjust to the new world order, the oil price continued nudging down. The US has granted eight nations temporary waivers from the sanctions. They include Japan, South Korea, India, China, Turkey and Italy. That was enough for the oil price to continue moving downward. This trajectory was exacerbated when ADNOC announced a major investment project to boost production over the weekend. Abu Dhabi will invest $132 billion to increase the emirate’s oil production to 4 million bpd in 2020 and 5 million bpd by 2030. Whenever the gap between supply and demand is close, the slightest piece of information will move the needle disproportionately. Cornelia Meyer This should not deflect from the fact that Iran is exporting somewhere between 800,000 and one million bpd less than it did when the sanctions were first announced in spring and that the massive sanctions will take their toll on the country’s economy. Markets are also still tight with global demand expected to grow to 100 million bpd this quarter for the first time in history. At the same time Venezuela’s production may fall below 1 million bpd in 2019. The export levels from Nigeria and Libya remain unpredictable and volatile due to their internal political challenges. The way the price behaved in the wake of the Iran sanctions being announced is a classic case of market overreaction. First, markets overshot when the sanctions were getting closer and the oil price reached $87 at the beginning of October — a level not seen since the autumn of 2014. Then, when it became clear there would be waivers, they undershot to the current levels. This reaction is a sign that markets are tight. Whenever the gap between supply and demand is close, the slightest piece of information will move the needle disproportionately. Still, we should not forget that spare capacity is limited. Therefore, the slightest upward move of the demand curve or supply shortage can potentially bring about a turnaround in the direction of travel of the oil price. Cornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News" point-of-view