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Takeaway: Today’s announcement is start of tougher US action on Iran as Trump considers renewing oil sanctions on Jan 12

The US Treasury Department today announced sanctions on five Iran-based entities involved with the ballistic missile program.  The sanctions target any assets subject to US jurisdiction as well as “foreign financial institutions that knowingly facilitate significant transactions” for the entities. The Treasury Department announcement is available here.

The Administration had hinted in recent days that individual or company sanctions were coming in response to the current protests in Iran so this announcement is not a surprise. Since the protests started on December 28, the White House was looking for a quick concrete response to penalize the regime and show support for the protestors.

Treasury Secretary Steven Mnuchin said in the statement that “these sanctions target key entities involved in Iran’s ballistic missile program, which the Iranian regime prioritizes over the economic well-being of the Iranian people.”

However, investors should view these sanctions as the starting point and not the end point of US sanctions on Iran.  The Treasury Department statement alluded to “additional sanctions.”

As we have stated in previous client notes, we believe President Trump is strongly considering not waiving sanctions on Iranian oil exports on January 12, a statutory deadline.  Indeed, the White House Press Secretary said Wednesday that “no final decision” had yet been made on oil sanctions and “all options are on the table.”

We believe the protests, as well as Trump’s decertification of the Iran deal in October, increase the likelihood that he will reimpose oil sanctions with the potential to affect at least one million barrels of Iranian crude exports.

The Administration policy on Iran is mainly being driven by Trump himself.  Trump believes the Joint Comprehensive Plan of Action (JCPOA) Iran nuclear deal is flawed and should have included additional items. He loathes that he is required by US law to periodically certify the agreement and waive sanctions for a deal he views as “terrible.”

Most of his advisors are urging the President to rollover the waivers and give more time for a legislative or diplomatic fix - as they believe this is the only way to keep Trump from nixing the deal and reimposing sanctions.

On the legislative front, there was a late push in December by the National Security Council and Republican Senators Bob Corker and Tom Cotton to try to get some traction for a legislative fix. Corker and Cotton want 60 votes in the Senate but Senate Democrats are not cooperating. It seems unlikely that there will be breakthrough by the January 12 deadline.

Trump primarily believes that waiving sanctions is not in the US national security interest as he thinks it has only provided revenue for Iran to make trouble in the region and further develop its ballistic missile program. In addition, he does not believe that waiving sanctions has helped the Iranian people and probably most of his advisors would be in agreement.

Trump has been briefed about the view that reimposing sanctions may aid the hardliners and hurt the protesters but he totally dismisses this idea.

Some believe that the sanctions announced today on the five entities is similar to the Venezuela situation in which they were done in lieu of tougher oil sanctions. But unlike Venezuela, Trump made his opposition to the Iran deal a central theme of his campaign. 

The October decertification and the recent protests make it tough to see a continuation of the status quo US policy on Iran.