The crude oil tanker ‘Devon’ sails through the Persian Gulf towards Kharq Island to transport crude oil to export markets in the Persian Gulf, Iran. (Photographer: Ali Mohammadi/Bloomberg)

Trump to Exit Iran Nuclear Deal and Reinstate U.S. Sanctions

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(Bloomberg) -- President Donald Trump said the U.S. will withdraw from the landmark 2015 accord to curb Iran’s nuclear program and reinstate financial sanctions on the Islamic Republic, opening an uncertain new chapter for the Middle East.

His decision, widely anticipated by allies and analysts, was intended to force Iran to renegotiate an agreement the country’s leaders have said they will not revisit. Trump’s political opponents warned he could lead the U.S. into another Mideast war.

“The fact is this was a horrible one-sided deal that should have never, ever been made,” Trump said. “We cannot prevent an Iranian nuclear bomb under the decaying and rotten structure of the current agreement. The Iran deal is defective at its core.”

The exit throws plans for billions of dollars of investments by European companies into disarray. Oil rebounded to trade at the highest level since 2014 as investors focused on how Iranian crude buyers will react to sanctions aimed at cutting exports from OPEC’s third-largest producer. Brent for July settlement climbed as much as 2.5 percent to $76.75 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $6.14 premium to July WTI.

German industry on Wednesday called for the European Union to shield investments.

“The German government and the EU now need to protect Iran business and restore lost trust,” the DIHK trade and industry lobby said in a statement. “Companies are worried that they could lose U.S. business as a result of their trade with Iran.”

Juergen Hardt, senior foreign affairs lawmaker for German Chancellor Angela Merkel’s party bloc, told the Phoenix broadcaster that Trump’s move was “highly risky” and “frivolous.”

Treasury Secretary Steven Mnuchin said he didn’t expect the sanctions to raise global oil prices since “to a certain extent some of this was already in the market.” He added that the U.S. has had conversations with “various parties” about entities that would be willing to increase oil supplies to offset any reductions in Iran’s output.

The sanctions halt $40 billion in aircraft sales by Boeing Co. and Airbus SE to Iran. Mnuchin said export licenses permitting the sales would be revoked.

French President Emmanuel Macron, who personally lobbied Trump to remain in the deal during a state visit to Washington last month, said on Twitter that “France, Germany, and the U.K. regret the U.S. decision to leave the JCPOA,” using an acronym for the agreement.

“The nuclear non-proliferation regime is at stake,” he said.

What’s Next: Who Gets Hit When U.S. Resumes Iran Sanctions

Trump has long criticized the Iran deal, negotiated under his predecessor Barack Obama, as the “worst” ever. He has complained that it doesn’t address threats from the country’s ballistic missile program or its involvement in fomenting regional conflicts, and that provisions of the deal that expire in the next decade would allow Iran to resume nuclear work.

“If I allowed this deal to stand, there would soon be a nuclear arms race in the Middle East,” Trump said. “Everyone would want their weapons ready by the time Iran had theirs.”

He said that because of limits on international inspectors, they are “not able to prevent, detect or punish cheating” by Iran and “don’t have the unqualified right to inspect many important locations” including military bases.

The Treasury Department said in a statement that sanctions would be reinstated after “wind-down periods” of 90 or 180 days. Nuclear-related sanctions that had been waived under the deal would take full effect after Nov. 4, the department said.

Read More: Understanding the Iran Nuclear Deal

Companies aren’t allowed to strike new deals in the Iranian oil and energy sector as of today. By August, transactions in Iranian government debt or currency and purchases involving the country’s automobile sector or Iranian gold and other metals must end. In November, deals involving Iran’s oil and energy sector, shipping and ports, and insurance services will be prohibited.

A resumption of U.S. sanctions would threaten Iran’s ability to attract foreign investment, keeping the country’s output flat or lower through 2025, according to a research note published Monday by Barclays.

It is unclear what may unfold following the U.S. withdrawal. American and European diplomats have sought to negotiate side agreements aimed at addressing Trump’s concerns about the deal, and the delay in reinstating sanctions may allow those talks to continue -- a prospect that Iran’s ally Russia, a party to the accord, raised ahead of Trump’s announcement.

Russia’s ambassador to the International Atomic Energy Agency, Mikhail Ulyanov, said the Iran deal wouldn’t end immediately as a result of Trump’s action and “we will have a certain amount of time for diplomatic efforts,” according to the Interfax news service.

Trump’s national security adviser, John Bolton, said in a briefing after the announcement that the administration will try to pursue a broader deal with Iran that would satisfy the president’s concerns.

Iranian President Hassan Rouhani suggested his country would continue to abide by the agreement, but that it was now between Iran and the five other signatories -- not the U.S.

Several members of Iran’s Parliament went to the podium before the session opened on Wednesday to set fire to the U.S. flag and the text of the nuclear deal, according to a report on state TV’s website.


Last-Ditch Efforts

“Breaking this deal increases the danger that Iran will restart its nuclear weapons program, which threatens our ally, Israel, and destabilizes the entire Middle East,” Senator Richard Durbin, an Illinois Democrat, said in a statement. “This is a mistake of historic proportions.”

Bolton said that Trump’s critics “would be badly mistaken” if they characterize his decision as a precursor to war. But he also said it is “entirely possible” that the U.S. will impose additional sanctions on Iran, on top of penalties waived by the nuclear deal, further ratcheting up tensions.

Diplomats engaged in the talks on side deals had signaled that they were close to a breakthrough, but key allies had been skeptical Trump would remain in the current pact, which curbs Tehran’s nuclear program in exchange for relaxing Western financial sanctions.

Macron has outlined a four-part plan to attach new curbs on Iran’s missile program and any future nuclear program, as well as its destabilizing activity in the Mideast, to the existing nuclear deal. But he and Merkel both signaled after meeting with Trump last month that he seemed intent on quitting the 2015 agreement.

Macron, Merkel and U.K. Prime Minister Theresa May issued a joint statement emphasizing “our continuing commitment” to the accord and urging Iran “to show restraint in response to the decision by the U.S.”

“Iran must continue to meet its own obligations under the deal, cooperating fully and in a timely manner” with nuclear inspections, they said.

Israeli Prime Minister Benjamin Netanyahu said Sunday that the 2015 accord is fatally flawed and must be “fully fixed or nixed” to stop Iranian aggression sooner rather than later. Rouhani warned earlier that the U.S. would face “historic” regret if it pulled out.

Netanyahu’s Role

Netanyahu delivered a televised presentation last week on secret Iranian files his country’s intelligence services obtained that he said prove that Tehran sought to build a nuclear weapon in the past despite its denials.

Netanyahu called Trump’s withdrawal from the Iran deal a “bold decision” and said the accord had fueled hostilities in the Mideast instead of reducing them by freeing billions of dollars for the Islamic Republic to funnel into militant proxies in the region.

“The deal didn’t push war further away, it actually brought it closer,” he said. “The deal didn’t reduce Iran’s aggression; it dramatically increased it.”

©2018 Bloomberg L.P.

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