Measures will likely only remove 300,000-500,000 barrels a day of Iranian crude from the market: analyst

Saying “the Iran Deal was one of the worst and most one-sided transactions the United States has ever entered into,” President Trump pulled the U.S. out of the Joint Comprehensive Plan of Action (JCPOA) with Iran today, ending U.S. participation in the Iran nuclear agreement that was signed by President Obama.

The statement said that President Trump has directed his administration to immediately begin the process of re-imposing sanctions related to the JCPOA. The re-imposed sanctions will target critical sectors of Iran’s economy, such as its energy, petrochemical, and financial sectors.

Those doing business in Iran will be provided a period of time to allow them to wind down operations in or business involving Iran. “Those who fail to wind down such activities with Iran by the end of the period will risk severe consequences,” the statement said.

Both Iran and its regional proxies will be put on notice.  “This step will help ensure global funds stop flowing towards illicit terrorist and nuclear activities,” the White House said.

In its statement, the White House said:

  • The JCPOA foolishly gave the Iranian regime a windfall of cash and access to the international financial system for trade and investment.
  • Instead of using the money from the JCPOA to support the Iranian people at home, the regime has instead funded a military buildup and continues to fund its terrorist proxies, such as Hizballah and Hamas.
  • Iran violated the laws and regulations of European countries to counterfeit the currency of its neighbor, Yemen, to support the Islamic Revolutionary Guard Corps (IRGC) Quds Force’s destabilizing activities.

The White House said in a statement that “President Trump is committed to ensuring Iran has no possible path to a nuclear weapon and is addressing the threats posed by the regime’s malign activities.  President Trump will work to assemble a broad coalition of nations to deny Iran all paths to a nuclear weapon and to counter the totality of the regime’s malign activities.”

The White House said President Trump is making clear that, in addition to never developing a nuclear weapon, the Iranian regime must:

  • Never have an ICBM, cease developing any nuclear-capable missiles, and stop proliferating ballistic missiles to others.
  • Cease its support for terrorists, extremists, and regional proxies, such as Hizballah, Hamas, the Taliban, and al-Qa’ida.
  • End its publicly declared quest to destroy Israel.
  • Stop its threats to freedom of navigation, especially in the Persian Gulf and Red Sea.
  • Cease escalating the Yemen conflict and destabilizing the region by proliferating weapons to the Houthis.
  • End its cyber-attacks against the United States and our allies, including Israel.
  • Stop its grievous human rights abuses, shown most recently in the regime’s crackdown against widespread protests by Iranian citizens.
  • Stop its unjust detention of foreigners, including United States citizens.

Clarifications on Sanctions

The U.S. Department of the Treasury issued a statement today regarding the reinstatement of sanctions on Iran’s regime:

“Treasury’s Office of Foreign Assets Control (OFAC) is taking immediate action to implement the President’s decision. Sanctions will be reimposed subject to certain 90 day and 180 day wind-down periods. At the conclusion of the wind-down periods, the applicable sanctions will come back into full effect. This includes actions under both our primary and secondary sanctions authorities. OFAC posted today to its website frequently asked questions (FAQs) that provide guidance on the sanctions that are to be re-imposed and the relevant wind-down periods.

OFAC updated its website today to provide guidance, including new FAQs.



Oil Closes Down 2.4% on Extreme Volume

Oil prices pared losses on Tuesday after President Donald Trump announced that the United States will withdraw from the 2015 Iran nuclear deal.

U.S. West Texas Intermediate crude oil settled down $1.67 a barrel, or 2.4 percent at $69.06, well off a 4.38 percent decline earlier in the day. The settlement was delayed by nearly an hour due to extremely high trading volume. The contract rose as high as $70.84 on Monday and ended the session above $70 a barrel for the first time since November 2014.

International benchmark Brent crude fell 47 cents , or 0.6 percent, to $75.71, also paring back an earlier decline of 4 percent. Brent touched $76.34 on Monday, its best level since Nov. 27, 2014.

In President Trump’s announcement Tuesday, he said the U.S. will withdraw from the Iran nuclear deal forged under the Obama administration and restore sanctions on Tehran suspended under the 2015 accord.

“We will be instituting the highest level of economic sanction,” Trump said. “Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States.”

Iran is OPEC’s third-largest oil producer and currently exports about 2.5 million barrels a day. Renewed sanctions could crimp those shipments at a time when global oil supply and demand have essentially balanced out. That increases the risk that the market could swing into undersupply and send oil prices higher.

However, prices backed off Monday’s highs after Trump tweeted that he would announce his decision four days before a deadline spelled out in the nuclear deal.

The tweet convinced some investors that the worst of the market’s fears — that Trump will move quickly to impose sever sanctions — won’t be realized, according to John Kilduff, founding partner at energy hedge fund Again Capital. Instead, some traders are now anticipating a “Trumpian half measure,” he said.

“I don’t think he’ll go much further than that,” Kilduff said. “We’re pulling out of the deal, but he’s going to hold off on reimposing sanctions until he can have an opportunity to work out some other sort of arrangements with Iran and the allies themselves.”

A CNN report on Tuesday appeared to at least in part confirm that expectation. Sources told the network it could take months for the sanctions to take effect as the administration develops guidelines for companies and banks.

Congressional sources told CNBC the administration plans to wind down various aspects of the deal over 90- or 180-day periods.

However, analysts say that a lack of international support for renewed U.S. sanctions means the measures will likely only remove 300,000-500,000 barrels a day of Iranian crude from the market. That compares with 1 million-1.5 million barrels a day under President Barack Obama.

The oil market is vulnerable to a sell-off because investors have taken out a record number of long positions in crude futures in recent months. Investors could unwind these long positions, or bets that oil prices will keep rising, if Trump’s announcement on Tuesday eases geopolitical concerns.

“A de-escalation of the geopolitical tension is likely to trigger an outflow from investors, reducing significantly whatever risk premium is embedded in prompt prices, given that investors are holding near-record net long positions,” Edward Morse, global head of commodities research at Citi said in a recent research note.

The continued deterioration of Venezuela’s economy, underpinned by a drop in its lifeblood crude production, has helped to underpin crude prices.

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