Calling it “a horrible one-sided deal that should have never, ever been made”, President Trump declared last Tuesday that the U.S. will pull out of the Iran nuclear deal made under the Obama administration. The United States is now preparing to reinstate all sanctions along with additional economic penalties on Iran.
French President Emmanuel Macron, German Chancellor Angela Merkel, and British Foreign Minister Boris Johnson all traveled to Washington in the past few weeks to lobby Trump to stay in the Iran deal. The withdrawal by the U.S. no doubt angers America's European allies, plus Russia and China who all would like to see the deal go through.
Why the Iran Deal Is Important (to Everybody Else)
Why all the other countries care so much about the Iran deal? When in doubt, follow the money. The initial pact will impose strict limits on Iran's nuclear program in exchange for lifting sanctions on the country. Once sanctions are lifted, many corporations in Europe, etc. seeking new growth and opportunities, are eager to do potentially lucrative business deals with oil-rich Tehran.
I am not going to do a full geopolitical analysis here regarding the potential impact of Trump's “new” foreign policy on Transatlantic Trade and Investment Partnership (TTIP), the Middle East and NATO, etc. but will discuss some of my personal observations.
Oil and Gasoline Prices Get Squeezed
First of all, this announcement seems ill-timed coming out right before the official start of U.S. summer driving season with an immediate negative impact (for consumers) on oil and gasoline prices.
Iran is a member of OPEC and one of the top 5 oil producing countries in the world. U.S. benchmark WTI oil price hit above $70 for the first time since 2014, while Brent currently sits around $78. By reinstating and adding sanctions on Iran, the new pressure on geopolitics and supply will squeeze the oil and gasoline prices higher than they should have been. Not to mention this may upset the balance of the oil cartel production decision in the upcoming June meeting.
