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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Iran Deal Opponents Try A New Approach

With Congress having failed to stop the Iran international nuclear agreement by September 17, opponents of the deal are now licking their wounds and focusing on the next steps. The nuclear agreement is all but final now, and there is little that Republicans or Democrats opposed to the deal can do to stop it from moving forward – at least from a direct standpoint.

Yet there are still a number of possible approaches that Congress can adopt to make Iran’s deal more difficult to implement, and to upset the Tehran regime. And if the regime gets upset enough, there is some small chance that they could walk away from the table and accuse the U.S. of violating the deal before it is even implemented. Related: Oil Majors Sacrifice Production To Protect Dividends

There are two basic approaches being used in Congress right now.

The first is Republican Paul Ryan’s approach of questioning the tax rules related to Iran going forward. Under the current law, there are various severe tax penalties that discourage U.S. companies from doing business with Iran. These rules effectively shut Iran out from doing business with U.S. companies including the technologically advanced U.S. oil sector. These rules are particularly problematic for Iran now as it is desperately seeking an influx of foreign direct investment to help it rebuild its sanctions-crippled economy.

Ryan wrote a letter to the President questioning the impact of the deal on these tax rules. Ryan wrote "Your policy raises serious questions about whether you intend to keep in place tax rules that discourage conducting business with Iran." Ryan’s letter is unlikely to change the President’s intentions, which are still unclear at this point, and there is little he or the rest of Congress can do to influence Presidential Directives, but the effort is part of a broader narrative of significant opposition in Congress to a deal. Related: How Russia’s Oil Companies Are Defying Sanctions and Low Oil Prices

The fact that a majority of Congress could not scupper the Iran deal is significant and suggests that even some Republicans see benefits in the deal. Yet many are very cautious and Congress is pressing to take a hard line with Iran.

The hard line being taken by Congress is reflected in the second current line of attack on the deal which involves the renewal of the Iran Sanctions Act. Under the nuclear deal, the President has suspended the sanctions imposed by Congress, but the legislation creating those sanctions – the Iran Sanctions Act – is not something that Obama can remove altogether. Instead, the Iran Sanctions Act has a sunset provision where it will expire in late 2016. The purpose of keeping the sanctions act on the books is to give Congress and the President a means to easily re-impose sanctions should Iran fail to hold up its end of the deal. Related: With Shell’s Failure, U.S. Arctic Drilling Is Dead

Many Republicans and some Democrats want to reauthorize the Iran Sanctions Act until 2026, but the White House is opposing that measure. Leading the charge on reauthorization are Republican Mark Kirk of Illinois and Democrat Bob Menendez of New Jersey, so there is certainly some measure of bilateral support for the idea. Supporters of reauthorization see the bill as a way to show Iran that the U.S. is serious about monitoring the country for compliance with the deal for years to come. The White House indicates that it supports reauthorizing the legislation, but says it is “premature” to do so now. With less than a year left on the clock for the Iran Sanctions Act, it’s unclear when the White House does want to push the reauthorization through though.

The fear in the White House is that Iran might see the reauthorization as a provocation and that it might even lead Iran to walk away from what could be Obama’s signature foreign policy accomplishment. Given that, it’s not a surprise that some Republican Presidential candidates are already coming out in favor of reauthorization. With that achievement in jeopardy, it’s likely that reauthorization of the Iran Sanctions Act will continue to be a line of attack on the nuclear deal for some time to come.

By Michael McDonald of Oilprice.com

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