Ok, so Donald Trump is about to decertify the Iran deal.
We went over this a couple of days ago when the Washington Post first reported that Trump is set to declare it “not in America’s national interest.”
Of course everyone knew this was coming. Trump has long been a vocal critic of the agreement (even though it’s pretty clear he knows nothing about it) and his inflammatory speech at the U.N. last month gave little in the way of doubt. For those in need of a refresher, here’s the clip:
There are two obvious problems here: 1) it sets the stage for Iran to immediately restart their nuclear weapons program, and 2) it will invariably jeopardize U.S.-led operations in Syria and Iraq as Hezbollah and Iran-backed militias (respectively) will have a new reason to take an adversarial approach to American forces.
But beyond that, it’s just plain stupid. Iran is in compliance with the deal and the idea that Tehran is an existential threat to the United States is patently absurd. It is understandably difficult for most Americans to reconcile Khamenei’s bombastic rhetoric with the assertion that Iran isn’t a threat, but the reality is that the spread of Sunni extremism is the problem. Shiite militias aren’t the issue. Not with regard to protecting the American homeland. Now if what you want to do is argue that America has an obligation to our ally in Israel to combat the spread of Iranian influence in the Mideast and part of that effort involves ensuring that Hezbollah doesn’t grow even stronger than it already is, well then fine. At least that’s a plausible argument. But don’t try to argue that Iran is the “number one” state sponsor of terror when it is in fact Sunni extremism that threatens the West and those Sunni extremists espouse an ideology that is institutionalized in the Saudi monarchy.
“The president isn’t looking at one piece of this. He’s looking at all of the bad behavior of Iran,” Sarah Huckabee Sanders told reporters on Friday. “Not just the nuclear deal as bad behavior, but the ballistic missile testing, destabilizing of the region, Number One state sponsor of terrorism, cyber attacks, illicit nuclear program,” she continued.
Again, some of that is valid, some of it is exaggerated and some of it just lies. All of it is hypocritical to the extent Washington continues to be friendly to regimes in the Mideast that knowingly prop up Sunni extremist groups.
Also yesterday, Reuters reported that “Iran has suggested to six world powers that it may be open to talks about its ballistic missile arsenal, seeking to reduce tension over the disputed programme.” The story cites “Iranian and Western officials familiar with the overtures.” Here’s Iran’s response:
- IRAN MISSILE PROGRAM NON-NEGOTIABLE, IRAN’S MEHR NEWS SAYS
- IRAN DENIES REUTERS REPORT ON NEGOTIATING MISSILE PROGRAM
So there’s that.
As far as market implications, the most obvious place to look is crude. To that point, Goldman is out with a new note addressing what’s important. One issue is whether, in the absence of international support for more sanctions, Trump could introduce secondary sanctions. Consider this, from the note:
Beyond the uncertainty of what the US administration will announce, we believe the lack of international support for renewed sanctions exacerbates the uncertainty on any potential impact on oil exports. European buyers, which account for 25% of Iran’s 2.2 mb/d crude exports, could potentially stop their purchases to avoid falling foul of US secondary sanctions if those sanctions are unilaterally reimposed. We believe the key to the global oil market is whether these flows will be curtailed rather than simply redirected to Asia with the potential impact of eventual US sanctions on international insurance and shipping key to this outcome.
Net, we would expect that if US secondary sanctions are renewed, they would initially put at risk a few hundred thousand barrels of Iranian exports. Without the support of other countries, however, it is highly unlikely though that production would fall back to its pre-deal levels or that a drop in export is imminent.
Here’s Goldman summarizing the wire stories that have hit in the past couple of days:
Beyond the uncertainty on what the US administration will do, we believe the response by the other signatories (Britain, France, Germany, Russia, China, the EU) will be key to any potential oil impact. International comments from other major participants in the JCPOA (Joint Comprehensive Plan of Action) have been supportive of the agreement in its current form (Reuters). Today (10/6) alone a European commission spokeswoman commented that the deal was working, that it could not be renegotiated and that it was a ‘durable, long-term solution to the Iranian nuclear issue’ (Bloomberg). This has been backed up by a German Foreign Ministry spokesman suggesting that the Iranian nuclear deal was ‘important’ and worth keeping (Reuters), whilst the Russian Foreign Minister suggested that it was ‘very important to preserve it in its current form and of course the participation of the United States will be a very significant factor in this regard’ (Reuters).
So basically, the impact would hinge on the extent to which Asian buyers could mop up the exports Europe refuses to take. “As a result, while highly uncertain, we would expect renewed US secondary sanctions to initially put at risk a few hundred thousand barrels of Iranian exports,” Goldman concludes.
But the other risk here is that this could inhibit Iran’s ability to attract foreign investment aimed at increasing production.
Whatever the case, Trump is about to poke a hornet’s nest and everyone on the planet realizes it. Yet again – and this is actually a completely objective assessment not colored by our inherent biases – this appears to be another example of Trump searching for “wins” where “wins” is defined purely as the fulfillment of campaign promises. His constituents don’t know any more about this deal than he does. But they do know he’s called it a “bad deal.” So irrespective of any other concerns – most notably whether he is in fact putting America at risk by going this route – he’s going to do this just so he can say he did it.
Here’s my question: if he had a list of other accomplishments he could point to (like say if “repeal and replace” had worked, or if the travel ban had gone smoothly, etc.), would he still be doing this? The answer would appear to be no. And I’m not sure that’s a good way to go about making foreign policy decisions, especially ones as important as this.