Oil Impact: President Trump and the Iran Deal, Countdown to Conflict

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“President Trump, by demanding on Friday that European allies agree to rewrite the Iran nuclear deal within 120 days or he will kill it, set himself a diplomatic challenge that would be formidable even for an administration with a deep bench of experienced negotiators.”

The New York Times, January 12, 2018

By now, most market participants know the abrupt “You’re Fired” Rex Tillerson (former U.S. Secretary of State) moment was driven by a conflict with the President over the Iran deal.

Countdown to May 12th

Brent is nearly 4% higher over the last week as Tillerson’s exit has put a bid under crude.  The perception across commodity trading desks is that the U.S. is far more likely to pull out of the agreement as early as May 12, the next deadline for the White House to extend the waiver on the sanctions.

The North Korea Connection to the Iran Deal

Some of our contacts in Washington doubt the Trump – Kim Jong-un meeting (North Korean leader Kim Jong-un) will actually happen.  They believe it’s a stunt by North Korea.  As the theory goes, NK’s Kim Jong-un wants to push talks out to mid-May when the next JCPOA (Joint Comprehensive Plan of Action – US Department of State) deadline is going down.  What a coincidence, that’s around the same time President Trump has threatened he will withdraw from the Iran Deal.  If the White House does pull the U.S. out, North Korea will fully pursue a nuclear program openly and justify it by claiming the U.S. can’t be trusted in international agreements.  The Trump Administration has said they want to meet before May which backs that up this line of thinking.

Large Upside for Crude if the U.S. Kills Iran Deal

Oil bulls have their minds on 2012.   As the U.S. launched touch sanctions with a bullseye focused on Iran’s oil industry.  Exports plunged by over one million barrels a day.  As we look toward the May 12 deadline on the Obama era Iran deal, a repeat of the drama six years ago would DOUBLE the expected supply deficit in the second half of this year.

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