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“There is significant risk of snap-back US oil sanctions on Iran on May 12. The Iran nuclear deal is on life support.” 

Tillerson’s Departure Signals End of Iran Nuclear Deal & Higher Oil Prices - z hedgeye trump

President Trump said Tuesday morning that he and Secretary of State Rex Tillerson disagreed on policy issues and singled out the Iran nuclear deal as the key example.  

“We got along actually quite well but we disagreed on things. When you look at the Iran deal: I think it’s terrible; I guess he thinks it was ok. I wanted to break it or do something and he felt a little bit differently so we were not thinking the same,” Trump told reporters. 

Trump’s decision to replace Tillerson surely signals the end of the Iran nuclear deal.  While a reluctant Trump issued another waiver of Iran oil sanctions in January, he warned that it was the last waiver unless the agreement is changed to address his concerns. 

Trump’s decision will set up a showdown at the next waiver deadline on May 12.  Tillerson was pursuing a separate side agreement with the EU to address Iran’s ballistic missile program but there was little sign of progress and unlikely that Iran would agree.  French President Emmanuel Macron will make a state visit to Washington in late April just in time to lobby Trump to renew the oil sanctions waiver and preserve the nuclear deal.

In our view, it is unlikely that Congress or the Europeans will take any meaningful action to modify the agreement. As a result, there is significant risk of snap-back US oil sanctions on Iran on May 12, and the nuclear deal remains on life support. 

Re-imposing US oil sanctions on Iran would put as much as one million barrels a day of Iranian crude exports at risk of being removed from global markets.  Such a move would inject significant geopolitical instability in oil markets and likely send oil prices higher. 

Trump’s new Secretary of State-nominee Mike Pompeo is aligned with Trump on the Iran policy. He had been a leading opponent of the Iran nuclear deal when he was a Member of Congress.