Jittery oil markets are awaiting President Trump’s decision whether waive US sanctions on Iran’s oil exports by a January 12 statutory deadline.
We think there is a strong likelihood that Trump will not waive sanctions again. Some of his foreign policy advisers and allies in Congress are urging him to give more time for a legislative fix to the Iran nuclear deal citing new momentum. But this new legislative momentum seems to have lost momentum over the last week.
The real question is how much patience does Trump have for a lack of progress in Congress or in diplomatic circles to fix flaws in a deal that he called “terrible” in a January 1st tweet.
Even if Trump is persuaded to issue another waiver on January 12 to provide more time for a solution, we think there is almost no chance he will issue another waiver again when the next deadline arrives on May 12. It seems unlikely that Congress will take any action to pass legislation or that our EU partners will address any of Trump’s concerns about the deal. As a result, we think 2018 marks the start of US sanctions on Iran oil sales and likely the end of the Iran Nuclear Deal.
Renewed US sanctions would not only result in an oil price spike by removing nearly 1 million barrels per day of Iranian crude exports from global markets, but would likely cause the entire nuclear deal to unravel.
In a December 21 client note, we said “we believed there is an increased likelihood that Trump will not issue another oil sanctions waiver.” While Trump has reluctantly issued prior sanctions waivers on May 18 and September 14, those deadlines occurred before the President decertified the Iran Nuclear Deal on October 13.
In our view, the protests that began in late December increase the odds that Trump doesn't waive sanctions again and make it hard to keep the status quo US policy on Iran as the January 12 date approaches.
There are signs on the international stage that US sanctions are imminent. The UN Security Council held an emergency session last Friday to discuss the protests but instead we heard comments by EU countries providing full-throated support for the Iran Nuclear Deal. On Monday, Iran’s foreign minister told the IAEA that Iran would reconsider its cooperation under the deal should the US take action.
Trump has been fully briefed about the notion that US action here (not waiving sanctions) may provoke or help the hardliners in Iran and hurt the protesters. But we believe Trump dismisses this view as he sees the hardliners and the current regime as one in the same. He also believes that only the regime has enjoyed the economic benefits of past waivers of US sanctions and not the Iranian people.
Separate from the January 12 waiver decision, Trump will also likely decertify the deal again on the January 13 deadline (every 90 days). This is not a surprise but wouldn’t have any real impact on sanctions. It would however restart the legislative clock again for a legislative fix and potentially offer public relations value to slam the regime amidst the protests. If he goes this route, it would set up a real showdown for the next sanctions waiver deadline in May.
While we are not sure Trump is patient enough to allow another two months for the “terrible deal” to be fixed, we are quite certain he will not agree to waive sanctions again without a fix when the next waiver deadline arrives on May 12. Another decertification on January 13 may be the last chance to salvage the Iran deal.
But we think the Iran nuclear deal and US waivers of oil sanctions are on life support.
