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With all the issues Europe faces today - Brexit, debt problems, political discord - spending last week in Milan was definitely an interesting experience for Marina and me.
But out of all those issues, my contacts were concerned about one thing above all else...
I'm talking about Washington's pending action on the Iranian nuclear accord.
And among the circles I travel in, most of the angst over this action is found in the intersection between energy issues and the once-again rising level of geopolitical tension.
But before we turn to the energy implications, here's what exactly is happening in Washington.
President Donald Trump announced Friday that he will not recertify Iranian compliance with the Joint Comprehensive Plan of Action (JCPOA).
That's the two-year-old agreement between Tehran and six major Western nations designed to limit Iran's nuclear weapons program.
The primary EU nations have already indicated they will move immediately to support JCPOA and break with any U.S. action, thereby driving yet another wedge between the United States and its erstwhile allies in the European Union.
And while Iran might end up not being hurt much at all...
Here's why U.S. oil companies will suffer.
Iran May Be Bad - but It Didn't Break the Deal
Crucially, the JCPOA agreement is between Iran on the one hand and the permanent members of the UN Security Council - the United States, United Kingdom, Russia, China, and France - plus Germany on the other.
Central to the accord is a trade-off between Iran foregoing a nuclear arms program, at least in the medium term, in return for a phasing out of Western economic sanctions. The International Atomic Energy Agency (IAEA) is tasked with the monitoring of Iranian compliance.
Every party, including the United States, has acknowledged that Tehran has lived up to its end of the bargain.
The IAEA has been provided with unparalleled access to Iranian facilities. The agency has certified that Iran is abiding by the provisions both for the development program itself and the existing nuclear stockpile.
The problem for Trump is that the deal became a staple element of his stump speech during the presidential campaign.
Meanwhile Iran has continued its ballistic missile testing program and has stepped up support for the Syrian regime and Hezbollah, while the administration in Washington views the Iranian Revolutionary Guard Corps (IRGC) as a terrorist organization.
This view of the IRGC has been shared by the two previous administrations.
Now, all three of these considerations are certainly disconcerting. But the problem is that none of these is part of the JCPOA.
Trump wants to use matters not part of the accord to scuttle it.
A number of international leaders are saying both in public and in private that to do so would be tantamount to challenging the status of the United States as a credible partner in any international negotiations.
As one of my Russian colleagues put it last week, "One does not improve the trade in oranges by adding apples."
Actually, the President not certifying the JCPOA (something he did earlier this year) is not the end of the accord. Instead, it moves the matter to Congress, which has to decide whether sanctions should be renewed.
Politics notwithstanding, the renewal of sanctions will prove difficult in the absence of any indication that Iran has not abided by JCPOA provisions.
Nonetheless, it will have an impact on global energy markets...
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American Oil Companies Will Be Left Out in the Cold
To begin with, uncertainty surrounding geopolitics in a region already as fragile as the Persian Gulf always increases crude oil pricing volatility.
The combination of a possible renewal in Iranian nuclear arms development with the chance that oil exports from the region may be adversely impacted by rising tensions simply adds some substance to the crisis.
Then there's the prospect that a JCPOA collapse may undermine the OPEC-Russia oil production cap.
After all, Iran will certainly respond to re-imposed sanctions by increasing exports, further eroding confidence among other OPEC members that restraining production is in their national interests.
In response, proponents of renewing American sanctions would point out that those restrictions would include a return to prohibitions against shipping (and providing insurance for) consignments of Iranian crude as well as blocking access to essential outside banking.
The latter would block the hard currency Iran needs to pre-finance exports.
But the problem this time around involves whether allies and others will continue to abide by such U.S.-initiated actions.
With European allies, Russia, China, and even some Persian Gulf parties (Qatar and its banking center in Doha, for example) still supporting the JCPOA, a break with Washington is likely.
So Tehran would still be able to get the needed banking from elsewhere, circumventing any returning U.S. sanctions relatively easily.
Additionally, while U.S. oil exports are again reaching levels not seen since the early 1970s, that doesn't mean American crude could replace Iran's in the market.
At levels approaching 1.5 million barrels a day, the potential for further flexible export capacity for U.S. production is limited.
So those hoping the end of JCPOA will usher in better returns for American oil companies because of higher oil exports may well be in for a major disappointment.
The opportunities for increasing sales, if any, are more likely to be experienced by OPEC members. They would now have a greater ability to exceed their production cap without depressing overall prices.
And that's the short term.
In the medium term, the implications for U.S. oil players are not good without the JCPOA.
See, both European energy majors and their continental sources of finance are now quite far along in negotiating deals to extract oil and gas in Iran, as well as for major liquefied natural gas (LNG) export contracts.
Those will continue, with the European home governments of both companies and banks supporting the ventures. Their views of what's in their national interest will start to separate form those emanating from Washington.
American companies will be left out in the cold, while U.S. sanctions will do little to Iran without the buy-in from allies.
Once again, short-sighted domestic politics is frustrating genuine, longer-term U.S. policy objectives.
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The post Why Iran Won't Mind Today's Sanctions Decision - But U.S. Oil Will appeared first on Oil & Energy Investor.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.