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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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What Happens If Trump Trashes The Iran Nuclear Deal?

Trump

U.S. President Donald Trump trashed the Iran nuclear deal at the UN last week, sparking speculation about whether he intends to pull the U.S. out of the deal before a key deadline by mid-October.

The U.S. president needs to recertify the agreement every three months, with the latest deadline coming up on October 15. There’s speculation that this time around, President Trump won’t issue a recertification, a move that could trigger the withdrawal of the U.S. from the international accord, with far-reaching consequences for U.S.-Iranian relations, Middle East stability, and global markets.

President Trump called the agreement “an embarrassment” and previously said it was one of the “worst deals” he’s ever seen. He begrudgingly recertified the agreement a few months ago, but has hinted that this time around he’ll pull the plug.

Trump’s case is problematic. He argues that Iran has violated the agreement, despite the fact that the International Atomic Energy Agency, the official monitor of the nuclear accord, says Iran has complied. So do the other signatories to the deal, including U.S. allies.

In fact, The New York Times reported in July that Trump tasked his aides “to find a rationale for declaring that the country is violating the terms of the accord.” Trump is trying to find an excuse to scrap the deal, despite the lack of evidence of Iranian non-compliance.

More recently, Trump has pointed to Iran’s actions on missile testing and support for terrorism, which have nothing to do with the nuclear deal.

Nevertheless, Trump appears to have a preference for scrapping the deal and taking a hawkish line on Iran. But unilaterally blowing up the deal is incredibly dangerous, and the U.S. would almost certainly be on its own. The U.S.’ European allies would likely balk at trying to return to a state of confrontation with Iran. “We already have one potential nuclear crisis. We definitely (do) not need to go into a second one,” the EU’s High Representative for foreign affairs told reporters at the UN.

Related: Failed Oil Price Recovery Slams Energy Stocks

Worse, the move could undermine the systems in place that monitor Iran’s nuclear activity, and would certainly make proliferation more likely. Eighty of the world’s leading nuclear nonproliferation experts issued a joint statement on September 13, arguing that the nuclear deal “has proven to be an effective and verifiable arrangement that is a net plus for international nuclear nonproliferation efforts.” They went on to add: “we are concerned by statements from the Trump administration that it may be seeking to create a false pretext for accusing Iran of noncooperation or noncompliance with the agreement in order to trigger the reimposition of nuclear-related sanctions against Iran.”

To what end? The problem for Trump is that he’s likely overestimating what the U.S. can do on its own. Sanctions on Iran worked because it involved global coordination, and included far-reaching steps to limit Iran’s ability to sell oil and use the international financial system to make oil sales. The result of that coordination was to significantly curtail Iranian oil exports—a move that severely damaged the economy and forced Iran to the table.

But, the U.S. likely would have serious trouble limiting Iranian oil exports on its own.

In short, the U.S. would forfeit some of the only ways to verifiably monitor Iran’s nuclear program, inflict damage on its already shaky relationship with key allies, sacrifice international goodwill and make conflict more likely—all for almost no upside. The end result: needless confrontation with Iran.

If that isn’t all, pulling out of the deal would essentially make any diplomatic resolution ending North Korea’s nuclear program impossible. For North Korea, why would it sign on to some nuclear deal if the U.S. unjustifiably trashes a landmark nuclear agreement that it signed just two years ago? 

Oil markets might interpret Trump’s move to scrap the nuclear deal as bullish for oil, but Iran shrugged off hypothetical attempts to restrain its oil exports. Saeid Khoshrou, director of international affairs at National Iranian Oil Co., told Bloomberg that Iran is “not worried” about its ability to export oil due to U.S. action.

Iran currently produces about 3.8 million barrels per day (mb/d) and exports about 2.2 mb/d, plus 400,000 bpd of condensate. Khoshrou said that about 60 percent is sent to Asia while the remaining 40 percent goes to Europe. Before sanctions were lifted in early 2016, Iran’s crude exports were forced down to less than 1 mb/d, but there is much less of a chance that the U.S. could inflict a similar level of damage alone. The “whole Europe won’t follow policy of U.S.,” Khoshrou said, according to Bloomberg. “For exports, I’m not worried about that.” Related: The Frac Sand Industry Has A Big Problem

For that reason, some think that Trump may, at the end of the day, decide not to scrap the deal. Even Iran is skeptical that the U.S. would make such a rash move. “We don’t think Trump will walk out of the deal despite (his) rhetoric and propaganda,” Iranian President Hassan Rouhani told reporters on the sidelines of the UN General Assembly last week.

If the U.S. does pull out of the Iran deal, it will burn all conceivable options short of war… with Iran as well as North Korea. Much of the rhetoric from Washington could very well be bluster, in which case, the impact on the oil market would be limited. On the other hand, military action, however inconceivable, would throw all oil forecasts out of the window.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Bill Simpson on September 26 2017 said:
    Nothing much will happen if Trump rips it up. The Europeans won't take orders from Trump, nor will the Chinese.
    And few countries will ever trust the US again for any treaty or agreement. For that reason, he might just do it.
    Attacking Iran would be a huge mistake.

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