London, 10 Apr – With the nomination of Mike Pompeo as Secretary of State and John Bolton appointed National Security Advisor, the prospect of sanctions on Iran becoming effective again are much greater now, according to analysts at Citigroup Inc., Societe Generale SA, Royal Bank of Canada, Mitsubishi UFJ Financial Group Inc.
Many banks are now including a so-called ‘snapback’ plan for Iran in their base-case energy scenarios. Still, they seem assured regarding the impact on oil supplies from the country. Which is surprising, as SocGen sees 500,000 barrels a day of exports at risk; the others, around 350,000. Previously, sanctions cut Iran’s production by more than 1.2 million barrels a day at their peak.
But the analysts believe that the EU won’t re-impose its ban on oil imports from Iran. The EU has imported some 500,000 barrels a day from Iran over the past year, and the EU doesn’t share US President Trump’s anger at the nuclear deal.
In fact, the deal is viewed as an important part of ensuring that Iran doesn’t become a nuclear power, in Europe. The deal wasn’t meant to address any other issues of Iranian policy — ballistic missile development and Iran’s activities in the Middle East were not in its scope. The EU believes that the deal is something to be built on, not thrown out. However, Trump reimposing sanctions could remove more crude from the market than analysts expect.
Trump has repeatedly called the The Joint Comprehensive Plan of Action (JCPOA), commonly known as the nuclear deal, ‘worst deal ever’. Pulling out of it will be a unilateral action by an unpredictable American president. It is believed that the policy process will be chaotic, with different people in the administration saying different things, leaving no one involved in trading Iranian oil knowing where they stand.
Banks and insurers with links to the U.S. must anticipate the worst and use caution. Looking back to Barack Obama’s presidency, in 2012 he imposed sanctions on foreign banks that “knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran or another Iranian financial institution.” They received six-month waivers if they “significantly reduced” Iranian crude purchases, which curtailed sales to Asia. In the absence of an EU embargo, this time it could hit European countries too.
While Europe might secure a waiver, it may have to come up with new measures targeting Iran’s non-nuclear transgressions, which is already a stumbling block, as no one seems to know what will satisfy the White House administration.