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Takeaway: Trump meeting with Iran unlikely and not a softening on US sanctions. It takes two to tango.

President Trump’s comment on Monday that he would "certainly meet with Iran if they wanted to meet” with  “no preconditions” prompted new speculation among oil market watchers that it is a sign the administration is softening its position on Iran oil sanctions.  

Iran Doesn’t Dance – No Backtrack on Sanctions - zoo

In our view, it would be a mistake to interpret Trump’s comments as a change in US policy on Iran, and the market should not expect any backtracking on Iran oil sanctions. 

Our forecast from a year ago remains unchanged: Trump would re-impose sanctions on Iran oil sales with tough implementation and no waivers. Since our initial forecast, Trump has 1) decertified the Iran deal last October; 2) reinstated oil sanctions in May; and 3) State Department and NSC officials have stated on the record that there will be “zero waivers” in recent weeks. 

Still, many market watchers and analysts continue to doubt Trump’s consistent Iran policy despite clear evidence to the contrary. Trump’s comment Monday about his willingness to meet with Iran does not change the equation.

It was in response to a reporter’s question and not in prepared remarks so it was not a planned change in policy. Moreover, Secretary of State Pompeo and National Security Advisor Bolton walked back the “no preconditions” part later in the day.  

While Trump sees such a meeting as another global media event like North Korea and Putin, we think Iran will not be inclined to meet nor certainly make the concessions or changes that Trump is seeking in a new deal.  It takes two to tango, and Iran doesn’t dance.  As a result, we think it is very unlikely a meeting takes place, and Iran has said as much in the hours since Trump’s comments. 

Many observers think Trump will blink on Iran oil sanctions due to high gasoline prices before the US midterm congressional elections.  We agree politicians loathe high gasoline prices but we don’t see it changing the Iran policy.  

First, we think gasoline prices in the US will likely retreat after the high demand summer season in September and will relieve some of this political pressure. Moreover, Trump views high oil prices as Saudi Arabia’s problem -- in exchange for his tough action on Iran.  The State Department has made it clear to other countries that waivers are not forthcoming. If a country says it needs the oil, they are told to call Saudi Arabia. 

Trump could also tap into the Strategic Petroleum Reserve (SPR) to moderate prices. We think there is a slight possibly of a SPR release closer to the election if prices stay elevated, and it would easily be justified on policy grounds by continued declines in Venezuela production. 

The Iran oil sanctions don’t go into effect until after the election, and Trump has several options for addressing high oil prices. But backtracking on his Iran policy is not one of them.

Iran Doesn’t Dance – No Backtrack on Sanctions - market brief