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How Wary Wall Street Is Sizing Up Trump's Plan for Iran Decision

(Bloomberg) -- President Donald Trump says he will announce his decision on Iran Tuesday at 2 p.m. Geopolitical jitters -- along with the start of the summer driving season and positive jobs data -- had helped push oil above $70 a barrel for the first time since November 2014. Stocks pared gains and oil futures dipped as investors weighed the forthcoming announcement. The U.K. and Israel are making their final pitches as Trump mulls an exit.

Here’s a sample of analyst commentary, with most comments released ahead of Trump’s tweet about Tuesday’s announcement:

Compass Point, Isaac Boltansky

  • “The prevailing wisdom at this point is that President Trump is likely to let the central bank sanctions waiver lapse at the end of the week,” though there is still “a slim chance that the White House punts this issue and instead focuses on the July waiver deadline”
  • “The market has slowly gravitated toward an expectation that the Iran deal is facing an existential risk, so the announcement itself is unlikely to surprise investors”
  • “Instead, the second and third derivatives of unwinding something as complicated as this deal will have untold repercussions”
    • “In particular, it is unclear how ending the Iran deal will impact the balance of power in the region over the medium and longer-term”

Horizon Investments, Greg Valliere

  • “The U.S. is likely to pull out of the Iranian nuclear deal on the May 12 deadline, a major issue for Western Europe but a litmus test for U.S-Israel relations”

Cowen, Chris Krueger

  • “It seems extremely unlikely that we will have status quo on May 13”
  • Sees two scenarios: Trump extends deadline a matter of weeks or months or terminates the deal

Capital Alpha, Charles Gabriel

  • “Many now expect the White House to extend its deadline for leaving or staying within the JCPOA for a month or two, discussing side deals with the French, Germans and British amid heavy lobbying from corporate interests”
  • Most believe that Trump and his advisers “will talk tough but ultimately bargain for JCPOA changes, rather than forcing a U.S. exit”
  • “Whether the result will be enough to lure Boeing and other risk-averse firms into deals they reportedly have ‘slow walked’ out of fear of returned sanctions against Iran, however, remains to be seen”

Beacon Policy Advisors

  • “We have strong conviction that Trump will allow the sanctions to be re-imposed,” as Trump often derides the JCPOA as “the worst deal ever” and recently installed Iran critic John Bolton as national security adviser
    • Notes Israeli Prime Minister Benjamin Netanyahu and Saudi Crown Prince Mohammad Bin Salman, the two Mideast leaders with whom Trump and Jared Kushner have the closest relationships, have also strenuously opposed the Iran deal
  • Even if Trump withdraws, Beacon is skeptical Iran will resume full-scale nuclear enrichment; doesn’t believe other countries will snap back sanctions against Iran as long as Iran demonstrates restraint; sees Iran as interested in growing trade/investment with agreement’s other parties
  • Trump administration could clash with traditional West European allies if he threatens restricted access for European financial institutions to the U.S. financial system as leverage to get other countries to re-apply sanctions
    • Although that’s what newly re-imposed sanctions may require, Beacon doubts Trump administration would follow through given likely adverse economic/financial consequences
    • “Ultimately, we believe that it will be sufficient for the president to claim rhetorically that he ‘ripped up the Iranian nuclear deal’”

RBC, Helima Croft

  • “The bureaucratic wheels are turning in Washington to prepare for a sanctions snapback and a renewed effort to reduce Iranian exports”
  • Sees Trump exit more likely than opting to waive sanctions once again due to North Korea; exit terms would be “key” with any delay in enforcement or grace period pushing volumetric impact on oil into 2019
  • “Extraterritorial nature” of U.S. sanctions, which cover energy, shipbuilding, finance, trade, insurance, and other areas, “means that depending on the enforcement date, Iran’s oil exports could credibly be curtailed by 200-300kb/d. Also, we caution that the risk could span beyond barrels if Iran opted to resume suspended nuclear activities in a post-JCPOA world”
  • Saudi Arabia’s willingness to put additional barrels on the market to avoid higher prices at the pump “cannot simply be assumed”

Tudor Pickering

  • Notes Iran supports “reasonable” oil prices ($60-$65/barrel) rather than artificially inflated prices; Tudor Pickering translates that into Iran having fiscal break even of ~$67/barrel compared to Saudi’s ~$85/barrel (per the IMF)
  • Sees market putting more weight behind Saudi commentary as threat of U.S. sanctions looms, future Iranian production growth likely needs international investment
  • “Saudi holds the majority of the cards as they possess the lion’s share of OPEC spare capacity and the remaining OPEC members continue to show a united front towards compliance as crude prices continue to climb”
  • If U.S. sanctions on Iran are reinstated, remaining OPEC members (notably Saudi, Iraq) “will be well positioned to gain the production share lost by continued declines/geopolitical instability without affecting the group’s total output”

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