President Trump’s announcement of National Security Advisor John Bolton’s departure from the Administration Tuesday morning is big news in Washington but highly unlikely to have the big impact on oil markets that some have suggested.
Conventional wisdom is already predicting changes in Trump foreign policy in Iran and Venezuela with Bolton out that may lead to easing of oil sanctions. We strongly disagree with this analysis as both policies pre-date Bolton’s arrival as national security advisor.
Oil prices were almost immediately down on the Bolton exit news. We think this concern is misplaced. In our view, the more significant news for the oil market today was EIA's forecast for demand to slip below 1 million barrels per day later in 2019 - a psychological line that underscores concerns about the global economy.
Bolton’s departure is about differences in Afghanistan policy that came to a head this weekend after Trump canceled a meeting with Taliban leaders at Camp David. It was well-known in Washington that Bolton disapproved of the negotiations so reports that he opposed the Camp David meeting and perhaps refused to publicly defend it to the media is not surprising.
But we think it’s a big mistake to infer Bolton was the reason behind Trump policies on Iran and Venezuela. To be sure, he is a hawk on both issues but so is Secretary of State Mike Pompeo.
More importantly, Iran’s biggest critic in the White House is President Trump himself. He pushed his former national security team to decertify the Iran nuclear deal and overrode their objections to reimposing sanctions. The team that disagreed with Trump’s policies on Iran and Venezuela were pushed out the door.
Trump has publicly said he would meet with Iran without preconditions but Iran refuses to meet until sanctions are lifted. Before the recent news of the appointment of a new Saudi oil minister and Tuesday’s Bolton departure, we have been preparing an updated note on Trump’s Iran policy.
Since the G7 meeting in France, many have been predicting a Trump-Rouhani meeting at the UN General Assembly in New York. But Iran’s participation in the meeting depends on the US lifting sanctions and/or cooperating with French President Macron’s $15 billion line of credit for Iran. According to our research, both options are non-starters for Trump. Despite the Bolton exit, we see the odds of a Trump-Rouhani meeting this month in New York as close to zero.
On Venezuela, Trump early in the administration began asking his national security team of McMaster, Tillerson and Mattis for military options to oust Maduro comparing the situation to President George H.W. Bush’s Panama invasion to arrest Noriega. Trump was walked back from this thinking by those advisors but their replacements Secretary Pompeo and Bolton were more aligned with Trump’s policy direction.
Moreover, there is an election year political consideration that will likely keep Trump focused on getting tougher on Maduro into 2020. Cuban-Americans and other Latin communities in states like Florida are pushing Trump for action in Venezuela. Any reversal would be political suicide. Even Maduro allies realize there is a short window for negotiations on new Presidential elections that see Maduro’s exit but the deadline is closing fast as 2020 approaches.
Secretary Pompeo is now the clear leader of the Trump national security team, and you would be hard-pressed to find a bigger hawk on both Veneuzela and Iran. In addition, we suspect Bolton’s replacement will be similar to his views on both topics. Possible replacement names we are hearing today include, former Reagan Assistant Secretary of Defense Frank Gaffney and current Venezuela Coordinator Elliott Abrams, who served in previous national security councils.
