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An agreement is an agreement, or so it's said.
Tensions are skyrocketing after Israeli Prime Minister Netanyahu's claim that Iran has violated the Joint Comprehensive Plan of Action (JCPOA) agreement.
This is the deal that was meant to shut down Iran's nuclear weapons program.
Whether Netanyahu is correct or not, it puts the ball in President Trump's court. Remember, he has questioned the JCPOA since before his election.
The talking heads on TV will tell you that canceling the JCPOA and renewing sanctions on Iran will drive oil prices up.
But the truth is much messier. Here's what'll really happen…
Iran's Restrictions Are Extensive – and Controversial
As we await a Trump decision on whether to continue the Iranian nuclear accord, the uncertainty is beginning to have an impact on oil's pricing volatility.
The accord signed during the Obama administration is officially called the JCPOA. It was agreed upon in Vienna on July 14, 2015, after some 20 months of negotiations.
Signatories include the five permanent (and veto-carrying) members of the UN Security Council (United States, UK, France, China, Russia), Germany, and the European Union (P5+1+EU) on the one hand, and Iran on the other.
Under JCPOA, Tehran agreed to eliminate its stockpile of medium-enriched uranium, reduce its store of low-enriched uranium by 95%, and decrease the number of gas centrifuges for 13 years by some 67%.
Additionally, for a period of 15 years, JCPOA states that Iran would do the following:
- Not enrich uranium beyond 3.67%, enough for energy use but well below weapons grade
- Agree to forego the building of any new heavy-water plants, essential to control nuclear reactions, over the same period
- Limit enrichment to a single location employing first-generation centrifuges for a period of 10 years
In return, the P5+1+EU agreed to begin phasing out – subject to a sequence of verifications – economic and trading sanctions imposed by the UN, the United States, and the EU.
However, during the 2016 presidential campaign, Trump heavily criticized JCPOA and pledged to scrap the accord…
America Wants More from the Agreement
In President Trump's view, matters not part of the agreement – such as Iranian support for global terrorism, continued development of ballistic missile programs, and support for enemies of Israel and Saudi Arabia in the Persian Gulf region – need to be added to the arrangement.
As a result, the White House announced in October of last year that it would not provide the periodic JCPOA certification as required under U.S. law.
However, the administration did not end the agreement.
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This week, Israel released documents claiming that Iran has continued its nuclear program in violation of JCPOA. The presentation was less than compelling, including little tangible information about the post-accord environment.
Both the International Atomic Energy Agency (IAEA) and independent watchdog organizations have said that there is no evidence to support the contention that Iran is evading JCPOA. The IAEA has the responsibility under JCPOA to monitor Tehran's compliance.
Now, my Iranian contacts were quick to note the obvious: Each of the new demands made by Washington are not part of what is covered by JCPOA.
"One does not revise an international arrangement after the fact to pander to one's own internal politics," a source in the Iranian National Oil Company said over the weekend.
There is also strong support from other permanent UN Security Council members, Germany, and the EU to continue the agreement.
Yet all other parties are very aware that JCPOA will not survive if the United States pulls out.
And neither will the current oil environment…
The Future without the JCPOA Is Bleak
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.