President Trump today signed a National Security Presidential Memorandum (NSPM) that withdraws the US from the Iran nuclear deal and reinstates all US nuclear sanctions on the Iranian regime subject to certain 90-day and 180-day wind-down periods.
Trump described the nuclear deal in the past tense during his remarks and provided tough language about sanctions that will now snap back into place.
Trump said the US would impose the “highest level of economic sanctions” on Iran adding that “any nation that assists Iran will also be subject to sanctions.”
Those market participants that were looking for a wait-and-see approach from Trump’s announcement were likely disappointed. While Trump said the US will continue to work with our allies to eliminate Iran’s threats, he added that “in the meantime, powerful sanctions will go into full effect.”
The Treasury Department statement released guidance and more details about sanctions minutes after the President’s remarks. Click here for the link to the Treasury guidance document.
Oil sanctions on Iran go into effect on November 5, 2018 after a 180-day wind-down period and include sanctions on Iranian ports and shipping sector; petroleum-related transactions and the purchase of petroleum, petroleum products or petrochemical products; transactions by foreign financial institutions with the Central Bank of Iran; underwriting services, insurance or reinsurance; and on Iran’s energy sector.
While the sanctions are imposed after the wind-down period on November 5, we believe the sanctions will have a chilling effect on the Iranian oil sector as companies will take a conservative approach and immediately begin to wind-down their activities and transactions.
We are aware that some media reports and market commentators are interpreting the 180-day wind-down period as another chance to preserve the nuclear deal but we think that is a mistake.
First, in a background briefing following the President’s remarks, a senior administration official dismissed this theory by saying “the US is out” of the Iran deal as of today.
Moreover, the Treasury guidance specifically addresses the wind-down period: “Non-US, non-Iranian persons are advised to use these time periods to wind-down their activities with or involving Iran that will become sanctionable at the end of the applicable wind-down period.”
In addition, the Treasury guidance states that reducing crude volumes during the wind-down period is a qualifying criterion for countries seeking a “significant reduction” exception from sanctions. “Countries seeking such exceptions are advised to reduce their volume of crude oil purchases from Iran during this wind-down period,” the Treasury guidance stated.
We do not believe there will be a great number of exceptions for countries or companies under the reimposed sanctions. The law provides for exceptions for “significant reductions” but it is a subjective standard. The Obama Administration defined a “significant reduction” as 20 percent but we expect the Trump team to have a tougher standard on the percentage of reduction in addition to other factors relating to sanction compliance.
