US: More hawkish than expected – Nomura

US President Trump announced yesterday that the US will withdraw from the Joint Comprehensive Plan of Action (JCPOA), better known as the Iran Nuclear Agreement, reached in 2015 with the UK, France, Germany, Russia, China (“P5+1”) and Iran and his language was more hawkish than expected, emphasizing that the US would reimpose all US sanctions that were lifted as part of the JCPOA, not just those up for renewal on 12 May, according to analysts at Nomura.

Key Quotes

“The Treasury Department noted that “Departments and Agencies will begin the process of implementing 90-day and 180-day wind-down periods for activities involving Iran that were consistent with the U.S. sanctions relief specified in the JCPOA.” The sanctions affecting crude oil transactions and Iran’s energy sector, notably those designated under Section 1245 of the FY 2012 National Defense Authorization Act (NDAA), fall into the 180-day wind-down period that should provide businesses with a six-month window to ensure compliance.”

“The European signatories to the JCPOA may still attempt to bring the US back to the negotiating table with Iran. However, for the moment, the US is pursuing a unilateral strategy by withdrawing from the agreement.”

“However, US withdrawal could result in sanctions against European businesses which continue to operate in Iran, potentially creating cross-border spillover effects that may endanger the agreement further, and create new barriers to cross-border transactions. Finally, Iran may eventually decide that continued participation with the other five JCPOA signatories is not desirable, given the widely expected intensity of US sanctions. This could also result in the agreement falling apart.”

“Beyond the 90-180 day window, the outlook is less certain. The President’s hawkish language has the potential to aggravate tensions in the Middle East further, potentially putting additional upward pressure on crude oil prices.”

“The US could unilaterally seek to re-impose UN sanctions, adding further distance between the US and key allies. Moreover, US National Security Advisor Bolton noted after the announcement that it is “entirely possible that additional sanctions will follow,” indicating the potential for sanctions beyond the pre-JCPOA agreement.”