The Daily Update - “Amad” Reaction - Trump Takes Iran and Oil Traders for a Ride

#prayfortheoiltraders appeared on Twitter yesterday as they were taken on a rollercoaster ride with Brent oil prices whipsawing down from 76 dollars to near 73 dollars per barrel even as all those holding $200bn of long oil futures contracts got what they were anticipating - Trump nixing the Iran Nuclear Deal. The expected price reaction eventually came 5 hours later when oil prices moved back up to where they started (the market having mostly priced in Trump’s braggadocio). At the time of writing, Brent prices have pushed above 77 dollars a barrel setting new highs – that is since the paradigm shift of oil markets in late 2014 (prices would still have to rise a further 50% to approach where they were in the first half of this decade).

As widely anticipated Trump ignored international urging and withdrew from (in his view) the “embarrassment” of a Deal that the Obama Administration botched in 2015. More accurately the 109 page “Joint Comprehensive Plan of Action” (JCPOA) was the achievement of almost 2-years of negotiations incorporating Iran and many vested nations: specifically the EU and P5+1 (permanent members of the United Nations Security Council—China, France, Russia, United Kingdom, United States, plus Germany).

The expectation for yesterday’s withdrawal was all but confirmed last month when Trump begun capitalising on Israel’s tirade against Iran’s 2002/03 “Project Amad” – with both heralding it as an undisclosed injunction against the latest agreement – contrary to the International Atomic Energy Agency (IAEA) who clearly documented its nefarious but ceased objectives. But Israel only needed to convince an audience of one. This does not mean that Trump’s (and Israel’s) suspicions of Iran are unfounded. After all, Iran were the first to U-turn on the previous Tehran Declaration and Paris Agreement in 2005, when Ahmadinejad came to power, subsequently boasting that they mastered the conversion of uranium yellowcake whilst under the pretence of adhering to the EU’s terms. And obviously the 2015 JCPOA was never expected to be an enduring guarantee of non-proliferation in the region – which clearly wasn’t enough for the man of the moment who is single-handedly bringing about peace on the Korean Peninsular (cough).

Clearly the US’s withdrawal means the reintroduction of even tougher sanctions for Iran and the consequential drop in supply of oil. But at current levels it seems like it would take a lot more than this to push oil prices significantly higher. As the market watches to see how the other crafters of the JCPOA react to Trump’s move it will also be telling to see how the tensions between Iran and Israel (which have been festering in the wastelands of Syria) evolve over the coming weeks which would be one scenario that could see oil prices rise further.