U.S. President Donald Trump, the country of Iran and oil have captured the headlines lately. However, some people aren’t sure how the three relate to each other. The answer to that question relates to a 2015 deal between the United States and Iran called the Joint Comprehensive Plan of Action. Signed by Barack Obama, the agreement suspended American sanctions on some aspects of Iran’s economy in exchange for Iran limiting its nuclear research.
It also released a significant amount of Iranian assets, although the exact amount is questionable. Trump claimed it was $150 billion. However, a 2015 high-end estimate from the U.S. Department of the Treasury was only $56 billion, and some analysts have estimated the amount is even lower. On May 8,Trump ended rampant speculation and announced the U.S. was pulling out of the Iran deal.
Oil Prices on the Rise
Even before Trump officially killed the Iran deal, oil prices went up substantially due to mounting suspicions about the agreement’s end. In late April, Israeli Prime Minister Benjamin Netanyahu alleged Iran was breaking the agreement by maintaining a secret nuclear facility. After that news, the crude price per barrel soared to more than $75, according to Brent Crude, an oil industry benchmark.
Soon after that, the International Atomic Energy Agency refused to directly address the allegations, but cited a lack of evidence that Iran continued developing nuclear explosives beyond 2009. When the Iran agreement was in effect, Trump had torecertify the country was upholding the terms of the deal. Last October, he asserted it wasn’t fulfilling the pact in spirit, but did not impose oil industry sanctions then.
This January, Trump warned that waiver of sanctions would be the last. His most recent decision that ended the deal could cut Iran’s crude oil output by up to a million barrels per day through 2019. However, the Iran deal is not the only thing causing oil prices to climb. Strong demand for oil, coupled with supply cuts from OPEC and Russia, have both sent costs upward.
The Potential Implications of the Ceased Deal
It’s too early to say for sure how and when society will feel the effects of the now-defunct Iran deal, but people are already making speculations, and some companies are already experiencing difficulties. There are convenient tools that let people check heating oil prices in their area, and some individuals understandably wonder how a limited supply of oil could impact other parts of life.
In the U.S., the price for a gallon of gas has jumped to a national average of $2.79. Since sanctions imposed on Iran limit the country’s oil exports, drivers can expect it’ll become even more expensive to keep their cars’ gas tanks full over the next few months and beyond. Moreover, in 2016, both Boeing and Airbus received export licenses to send airplanes to Iran, making it possible for both companies to create multi-billion-dollar agreements to renew Iran’s aging air fleet.
The renewed sanctions bar airplane exports to Iran, making existing deals between Boeing, Airbus and Iran no longer valid. So, the two aircraft manufacturers could miss out on profits collectively totaling $47 billion. On the consumer side of the air travel sector, some European brands started offering direct flights to Iran after the 2015 deal eased sanctions. Due to the return of the economic barriers, those air providers may decide the Iranian air routes aren’t worth the extra expense.
Iran’s economy has grown, but it’s still fragile. Any sanctions imposed due to the Iran deal no longer existing will undoubtedly hamper the nation, as well as all countries that get oil from Iran. It’s also possible some countries will try to pay for Iranian oil in non-dollar currencies to avoid penalties. However, White House officials insist all crude oil transactions occur in U.S. dollars through United States banks. That may make countries consider dealing with nations that are not subsidiaries of the United States.
Even though the U.S. backed out of the Iran deal, Britain, Germany and France have vowed to uphold it. In response, U.S. national security adviser John Bolton warned that countries taking that approach would have sanctions put upon them, too. Secretary of State Mike Pompeo echoed that sentiment during a television appearance. He revealed plans to meet with European diplomats soon, during which he saidhe will detail the potential European sanctions.
Mixed Reactions to the End of the Deal
As the world received news about the Iran agreement ending, varied feedback came out. Former President Barack Obama condemned Trump’s decision, as did Dick Durbin, a Senate Democrat. Senator Susan Collins, a Maine Republican said “she preferred the U.S. work with allies and fix flaws in the existing agreement, rather than scrapping it.”
Conversely, Sen. Marco Rubio of Florida was among the supporters of Trump’s ultimate withdrawal. Speaker of the House Paul Ryan was also in favor of the decision, but agreed with Collins that fixing the deal was preferable to abandoning it. One thing’s for sure:The Iran deal is over, and it’ll have an obvious and long-term effect on oil prices and other aspects of society in the U.S. and elsewhere.