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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Trump’s Softer Line On Iran Could Tank Oil Prices

Trump is mulling easing sanctions on Iran as a way to increase the odds of a face-to-face meeting with Iranian President Hassan Rouhani.

Oil prices briefly fell on Tuesday after President Trump fired national security adviser John Bolton. Prices then rebounded after the EIA reported another drawdown in oil inventories, adding to evidence of a short-term tightening up of the oil market.

However, prices were back down on Wednesday after Bloomberg reported that part of the motivation behind Bolton’s ouster was a recent meeting in which Trump considered easing oil sanctions on Iran as a sign of good faith, hoping to warm up the Iranian side to agree to a meeting. The idea would be that Trump could meet President Rouhani on the sidelines of the UN Conference in New York later this month.

Experts note that the removal of Bolton alone does not necessarily portend an imminent breakthrough in U.S.-Iran relations. After all, even as Trump vacillates on many issues, and does not seem to have a core ideology or coherent foreign policy strategy, he has displayed a consistent antipathy to the 2015 Iran nuclear deal. In that sense, Bolton somewhat fit the role. Trump wanted a “maximum pressure” campaign on Iran.

On the other hand, Trump has also showed a hesitation when it comes to aggressive military engagements, and he campaigned on disentangling the U.S. from endless war. His last-minute decision in June to refrain from attacking Iran widened the divide between him and Bolton – Bolton was all-in on a military strike.

Still, even with Bolton out of the picture, Trump is still left with a wide-ranging sanctions apparatus targeting Iran. Also, Secretary of State Mike Pompeo butted heads with Bolton, but he has also been a consistent hawk, and has helped engineer the maximum pressure campaign.

Nevertheless, Trump has shown an appetite for face-to-face meetings with world leaders. His decision to press forward with ill-prepared summits with North Korea’s Kim Jong Un comes to mind. Related: Oil Markets Face Serious Risk Of New Supply Crunch

In that context, Trump’s desire for a meeting with Iranian President Hassan Rouhani maybe is not all that surprising. But it was the straw that broke the camel’s back between him and Bolton.

On Monday, U.S. Treasury Secretary Steven Mnuchin supported a plan to ease sanctions on Iran as a way to restart negotiations, according to Bloomberg. One idea would be a three-way meeting between Trump, Rouhani and French President Emmanuel Macron. In fact, Macron maneuvered in recent weeks to try to arrange such a diplomatic breakthrough. He invited Iranian foreign minister Javad Zarif to attend sideline meetings at the G-7 conference in August.

Such a meeting is still a huge lift. It’s not clear that the Iranian side would agree to such a meeting, which would carry enormous risks for President Rouhani, who has battled with hardliners for years.

“From the point of view of the Iranian government, parliament and people, negotiating with the US under sanctions is pointless,” Rouhani said in a readout of a phone call with President Macron on Wednesday, according to Iranian press. While that seems definitive, he also said apparently said “If agreements with Europe are finalised, we are ready to return to our JCPOA obligations and Iran and a P5+1 meeting is only possible when sanctions are lifted.”

It’s not clear that the Trump administration is willing to lift all sanctions – that would likely be viewed as a shocking climb down – but Iran is leaving open the door for negotiations. Easing sanctions could conceivably smoothen the path for a meeting.

An about-face regarding sanctions and a restart of negotiations would divide Republicans and U.S. hardliners in the national security establishment. But for Trump, the upsides are also significant. For one, the maximum pressure campaign has gone nowhere, and it has pushed Iran out of compliance with the nuclear accord. The plans has backfired, making Iran more likely to pursue a nuclear program, while also making war more likely – something that Trump, nor anyone, should want. Related: Strong Crude Inventory Draw Sends Oil Higher

“The French are offering Trump a facing-saving way out of a mess of his creation. He should grab it,” Suzanne DiMaggio, a senior fellow at the Carnegie Endowment for International Peace, said on Twitter.

When Sec. of State Mike Pompeo was asked on Tuesday whether or not Trump would be willing to meet Rouhani, Pompeo said “Sure...The president’s made very clear, he is prepared to meet with no preconditions.”

Moreover, in political terms, there are incentives for Trump to chart a new course. A deal with Iran, even a hollow one that does not resolve outstanding differences, would sharply push oil prices down. Low gasoline prices would be a political gift as Trump tries to get reelected. He could also boast about a foreign policy victory, even if the “deal” reached doesn’t break new ground.

Still, there is a long way to go in a very short period of time. The UN meeting is less than two weeks away. But even if a meeting does not take place, the fact that Bolton is out and Trump is considering pulling back on the sanctions is a recipe for lower oil prices.

By Nick Cunningham of Oilprice.com

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