One of the growing concerns resulting from Trump’s decision to pull the U.S. out of the Iran deal, is that oil – and gasoline – prices will jump so much, now that anywhere between 200kb/d and 700kb/d in Iran exports is taken out of the market, they will offset most benefits to U.S. consumers from the Trump tax cuts. We covered this topic three weeks ago in “Rising Gas Prices Threaten To Wipe Out Trump’s Tax Cut Benefits.”
Incidentally, that’s one of the lesser complications which could emerge over the next 6 months as the full extent of new sanctions on Iran are rolled out. As we reported earlier, Trump said the U.S. would levy the “highest level” of sanctions against Iran — including punishment of Western companies and banks that continue to do business with the country — as Washington pulls out of the Iranian nuclear accord.
And while new contracts are re-banned, companies and banks will have 90 days or 180 days to wind down their ties before risking penalties.
“Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States,” Trump said, envisioning a complete paralysis of the Iranian economy. As the Wall Street Journal summarizes, financial or business activities outlawed by Aug. 6, the Treasury said, include exports of airplanes and airplane parts, dollar transactions, trade in gold and other metals, sovereign debt and auto-industry deals. By Nov. 4, sanctions will ban oil purchases, deals with Iran’s ports and shipping industry, any ties to its insurance sector and deals with the central bank.
But is the president really willing to alienate any of the countless European and global states that will continue trading with Iran, especially since the latest sanctions cover every major aspect of Iran’s economy, most importantly banning oil exports from the country, but also hitting the financial sector and the automotive and aviation industries.
That’s the big question.
Speaking at a press conference after Trump’s announcement, Treasury Secretary Steven Mnuchin said that “this administration is resolved to addressing the totality of Iran’s destabilizing activities”
And here something interesting emerged.
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Ahead of the Trump sanctions announcement, many had speculated that the president is playing hardball for purely populist and theatrical purposes, but in reality, Trump is exiting the deal only so he can re-enter it on his own terms.
Furthermore, the adverse impact to Trump’s approval rating that would accompany a surge in gasoline prices would be much worse than any number of Russian kompromats the NSA can leak to the Washington Post or New York Times.
The reality is that both Trump and Mnuchin realize this, and are hardly willing to gamble with Trump’s freedom, especially since Trump himself warned that should the Democrats win the midterm elections he may be impeached. Yet while Mnuchin said during today’s press conference that he does “not expect oil prices to go higher”, absent Iranian oil returning fully to the market, it seems improbable that oil will slide back to $50-60.
So was today’s historic unraveling of Barack Obama’s biggest foreign policy achievement just another grand performance by Trump?
One sign pointing to fact that it may be, is that Mnuchin claims the hiatus before enforcing compliance is to buy time for allies to exit deals with Iran. But more importantly, it is pressure Iran and European allies to back a potential new accord on nuclear development as well as other activities deemed hostile by Washington.
And, as the WSJ adds, “the wind down periods allow for more than enough time that if there’s not a deal that the sanctions will take effect,” Mnuchin said and added what we believe is the punchline: Trump’s objective in re-imposing sanctions on Iran and threatening to penalize allies “is to enter into a new agreement” even though sanctions will remain in place until the nuclear program is stopped. Then again, according to Iran and countless independent observes, Iran’s nuclear program has already stopped, meaning Trump himself deliberately set up the straw-men so he can take them down, and upon “revising” the deal, reincarnate it, only this time it will be “Trump’s Iran Deal”, not “Obama’s Iran Deal.”
There you have it: according to Mnuchin, Trump’s goal is not to punish Iran and leave it out of the international community – sending oil prices soaring – instead, it is to threaten and pressure. In fact, as the WSJ adds, “just as the Trump administration announced steel tariffs but later provided temporary exceptions for allies, the U.S. is leaving itself wiggle room should its actions prove to be too disruptive or too tough to enforce.”
The loophole were also a mile wide: “Mr. Mnuchin said that the U.S. could give exemptions to countries proving they were significantly reducing their purchases from Iran. Treasury didn’t elaborate on what “significant” means.”
Finally, addressing the underlying futility of the sanctions, the head of MENA research at MUFG Bank, Ehsan Khoman, said that China, India, Russia and Turkey will likely oppose U.S. sanctions and keep current levels of Iranian crude purchases, even as the occasional U.S. allies – including Japan and South Korea – may comply with U.S. sanctions because of concerns they could lose U.S. security umbrella against North Korea.
Meanwhile, the EU could also escape Trump’s retribution and protect its entities operating in Iran by offering non-USD denominated currencies through institutions including the European Investment Bank.
“It is unclear whether the potential use of non-USD denominated finance lines will offer much protection to European entities, and thus such a move could be largely symbolic in nature.”
Finally, Khoman notes that in a sign of de-escalation, the EU may not reinstate sanctions on shipping insurance, which were “critical in disrupting Iranian crude exports between 2012 and 2016.”
In short, Trump’s sanctions will be delayed for months, have extensive loopholes, and allow most of Iran’s existing trade partners to continue buying oil. The move may just be a big smokescreen which will allow Trump to say he achieved one more campaign promise, while in reality, both Trump and Mnuchin are doing their best behind the scenes to “enter a new agreement”, one which Trump can bring to the masses and say: “here, I took Obama’s unacceptable, defective deal, and made it better…. and i also brought down the price of oil too.”
Top Photo | President Donald Trump delivers a statement on the Iran nuclear deal from the White House, May 8, 2018. (AP/Evan Vucci)
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