Editor's Note: The research note below was written by Hedgeye Energy Policy analyst Joe McMonigle on Friday. For information on how you can access his institutional research email sales@hedgeye.com.
President Trump today named former UN Ambassador John Bolton as his new National Security Advisor adding another Iran nuclear deal opponent to his Administration. While we believe Trump was already planning to kill the Iran deal in May, he now has added new advisors to his administration to help him implement his plans exit the deal.
The first major action we expect is for Trump to reimpose US oil sanctions on Iran on May 12 that will likely trigger Iran to walk away from the deal with the Europeans.
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.
EU governments will probably not go along with US sanctions initially but European energy companies, who have significant economic exposure in the US, will likely adhere to US sanctions. The EU alone imports about 500,000 barrels a day of Iranian crude and has historically been a major Iranian export market. If Iran walks away from the deal, the Europeans will also eventually reimpose sanctions as well. The US would also lean heavily on Japan and South Korea to also honor sanctions, and we believe they will go along due to the North Korea situation.
Trump has long viewed the Iran deal negotiated by the Obama Administration as “terrible.” Under US law the President must make a decision to waive Iran sanctions every 120 days in order for the US to keep its commitment under the Iran nuclear deal. The next deadline is May 12.
Trump’s new Secretary of State-nominee Mike Pompeo is also aligned with Trump on the Iran policy and will join Bolton as another opponent of the Iran nuclear deal. Both Rex Tillerson and current NSC Advisor HR McMaster had advocated for staying in the agreement with Iran.
