Below is an excerpt from an institutional research note written by Hedgeye Potomac Senior Energy Policy analyst Joe McMonigle. If you're an institutional investor email sales@hedgeye.com to read more Energy Policy research.

DONALD OF ARABIA: Trump’s Successful Middle East Trip Raises Risk to Iran Nuclear Deal & Oil Market - donald of arabia 1

On the day Iran’s President Hassan Rouhani was re-elected to another term, President Trump had departed Washington on his first foreign trip as President to Riyadh for talks with King Salman and others in the anti-Iran coalition.

The Iran nuclear deal dodged a bullet with Rouhani’s reelection over hardliners opposed to the deal. But one cannot dismiss the significance that President Trump, the most prominent critic of the Iran deal, chose Saudi Arabia as the first country to visit on his inaugural foreign trip.

In addition to the sword-dance, the Saudi’s did not disappoint the moment as was clearly evident in the President’s reaction and words in Riyadh. “I want to thank King Salman for his extraordinary words and the magnificent Kingdom of Saudi Arabia for hosting today’s summit,” said Trump. “Words do not do justice to the grandeur of this remarkable place and the incredible hospitality you have shown us from the moment we arrived.”

Trump then announced a $110 billion military weapons sales deal with Saudi Arabia that the White House said will translate into more American jobs.

In his speech to the first Arab Islamic American Summit, Trump specifically called out Iran as “a regime that is responsible for so much instability in the region.” Trump continued “All nations of conscience must work together to isolate Iran, deny it funding for terrorism and pray for the day when the Iranian people have the just and righteous government they deserve.”

After Riyadh, the President flew to Israel for talks that no doubt also included concern about Iran and the nuclear deal itself.

While the conventional wisdom in the foreign policy community in Washington is that the Iran nuclear deal will survive under the Trump Administration, our contacts in the White House tell us the future of the Iran deal is hardly a settled point. 

In April, President Trump ordered a review of the policy, and Secretary of State Tillerson reiterated during the Middle East trip that the Iran nuclear deal is still “under review” by the administration.

The President himself has been less diplomatic about the JCPOA, calling it the “worst deal ever”.

For oil markets, the increasing anti-Iran rhetoric and a closer US-Saudi alliance, pose a higher risk to the Iran nuclear deal that lifted sanctions and added about 1 million barrels a day (b/d) of Iranian crude exports to global markets.

Iran’s action on ballistic missile testing is also causing deep concern in the Congress about the need for future sanctions. On Thursday, the normally cool-headed Senate Foreign Relations Committee passed bipartisan legislation to expand sanctions on Iran for ballistic missile development. For now, some in Congress are trying to keep separate the ballistic missile issues from the nuclear deal but that will become increasingly difficult on the current path.

Moreover, continued Iranian trouble-making in the region or further Iranian navy encounters with US Navy or other ships could present more catalysts for a Trump rejection of the nuclear deal and/or additional sanctions.