President Trump surprised oil markets today with a tweet that he will announce his Iran deal decision early on Tuesday afternoon instead of waiting for the Friday deadline.
Under US law, Trump must make a decision every 180 days to waive oil sanctions in order to comply with the Iran Nuclear Deal. The next deadline is May 12. A decision to re-impose US sanctions on Iran oil sales will likely mark the end of the Iran deal.
Trump detests that he has to put his personal stamp of approval on the Iran nuclear deal that he has called “insane” and “terrible.” We believe that Trump will deny the oil sanctions waiver in his Tuesday announcement and set in motion implementation of renewed US sanctions on Iran oil sales.
The only remaining questions are about the timing and implementation of sanctions by the US Treasury Department. We understand these key details are still being developed. However, our view is that any transition or implementation period will be shorter and faster under new National Security Advisor John Bolton and Secretary of State Mike Pompeo than might have been expected under General McMaster and Rex Tillerson.
The announcement likely will also set in motion another effort by European diplomats to press Iran into negotiations on additional provisions or a new deal. While this presents some headline risk, Iran has publicly stated it will not renegotiate the deal.
We also expect that EU governments will make announcements that they will not join the US in snapback sanctions but from a practical standpoint European energy companies will have little choice. EU governments do not import oil but their European energy companies do. All of these companies have significant economic exposure in the US and would be forced to choose between closing up shop in the US or continuing to buy Iranian oil.
Iran has added about one million barrels a day (b/d) to oil markets since nuclear sanctions were lifted in 2016. We believe re-imposing US sanctions on Iran oil sales will remove a minimum of about 500,000 b/d in physical crude from the market but could be closer to one million b/d when you add in exports to Asia. We expect China will continue buying Iranian crude but at levels similar to those before sanctions were lifted.
Oil prices dropped sharply after the surprise Trump tweet about the early Iran deal announcement. We understand the date was moved up to short circuit efforts by former Obama Administration Secretary of State John Kerry to salvage the deal in talks with Iranian and European officials.
Earlier in the day, Trump criticized Kerry’s actions by saying he was responsible for the Iran “mess.”
