Citigroup Inc., Societe Generale SA, Royal Bank of Canada, Mitsubishi UFJ Financial Group Inc. Analysts at all these banks think the chances of sanctions on Iran snapping back into effect are much greater now that Mike Pompeo has been nominated Secretary of State and John Bolton appointed National Security Advisor.
Not the most startling insight given the characters involved, but many banks now include so-called “snapback” for Iran in their base-case energy scenarios.
Yet they’re remarkably sanguine about the impact on oil supplies from the country. SocGen sees 500,000 barrels a day of exports at risk; the others, less than 350,000. The previous sanctions cut Iran’s production by more than 1.2 million barrels a day at their peak. So you’d have to ask why the analysts aren’t more pessimistic.
They say it won’t be as bad because the EU won’t re-impose its ban on oil imports from Iran. The region has imported about 500,000 barrels a day of crude from Iran over the past year, and Donald Trump’s fury about the nuclear deal isn’t shared on the other side of the Atlantic.
In Europe, the deal is seen as an important part of making sure Iran doesn’t become a nuclear power. It was never meant to address other issues of Iranian policy, such as its ballistic missile development or its activities in the Middle East. It’s something to be built on, not thrown out.
People may indeed be right about the EU not restoring its blockade, but that may not matter. A Trump snapback could remove much more crude from the market than analysts expect. There’s little point in the president pulling out of the “worst deal ever” if it has limited impact on Iran’s main source of foreign income.
This will be a unilateral action by an unpredictable American president, no doubt delivered in 280 characters via Twitter. The actual policy process will be chaotic. As usual, different people in the administration will say different things, with varying degrees of hawkishness. Nobody involved in trading Iranian oil will know where they stand.
This could give a U.S. withdrawal much greater punch. Banks and insurers with any U.S. links will have to anticipate the worst and behave with maximum caution. None will want to be singled out in a presidential tweet. Imagine how it might play out on Twitter if banks continued to provide credit for purchases of Iranian oil, or insurers underwrote cargoes and vessels.
SHAMEFUL! Bank X funding terrorist Iran oil sales! We will KICK OUT sad supporters of failing regime from U.S. market. Work in our GREAT COUNTRY or for brutal and corrupt Iranian regime. You choose! Can’t have both! Must act NOW!
No-one likes to be bullied, but even the finance firms that facilitate the flow of Iranian oil to Europe and Asia would be mightily brave to ignore the threat.
The precedent under Barack Obama shows how it could play out. 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,” though they got six-monthly waivers if they “significantly reduced” Iranian crude purchases. That curtailed sales to Asia. This time, in the absence of an EU embargo, it would hit European countries too.
True, Europe might secure a waiver, but only if it comes up with new measures targeting Iran’s non-nuclear transgressions. And nobody seems to know what would satisfy the men in the White House. As such, it would be foolish not to plan for a bigger drop in Iran’s exports.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.