Editor's Note: Below is an excerpt from an institutional research note written by Senior Energy Policy analyst Joe McMonigle. To read McMonigle's institutional research email sales@hedgeye.com.
President Trump signed a National Security Presidential Memorandum (NSPM) on Tuesday 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 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. 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, National Security Advisor John Bolton said on Tuesday that “the US is now out” of the Iran deal. Treasury Secretary Mnuchin described the sanctions as “immediate” in his briefing.
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.
While the law provides for exemptions from sanctions, we do not believe there will be a great number of exceptions for countries or companies from the Trump team under the reimposed sanctions.
