A shakeup in President Donald Trump’s foreign policy team casts a long shadow over the future of the Iran nuclear deal, but is bullish news for oil prices.
In just two weeks, President Trump reshuffled his national security team, firing National Security Advisor H.R. McMasters and Secretary of State Rex Tillerson and bringing on President Bush’s Ambassador to the United Nations John Bolton and CIA Director and former Congressman Mike Pompeo.
The latest upheavals shift U.S. foreign policy in a hawkish direction, departing from the policies of the Obama administration and injecting greater uncertainty into America’s relationship with the outside world, causing oil prices to increase.
A key policy achievement of the Obama administration was the deal with Iran to limit its development of nuclear weapons. The agreement lifted U.S. and European sanctions restricting trade on various Iranian commodities in exchange for Tehran giving up most of its supplies of uranium.
The deal is up for renewal on May 12. President Trump has been a critic of the agreement with Iran since the campaign and recently told Israeli Prime Minister Benjamin Netanyahu that he plans to end the agreement. Before Tillerson and McMasters left, the Trump administration was considering placing additional sanctions on Iran.
The newest advisors on Trump’s staff have a history of criticizing the Iran deal, unlike Tillerson and McMasters. Bolton served in the Bush administration until 2006. During that period, oil prices increased because of the policies he championed. Bolton has criticized Presidents Bush and Obama’s positions on Iran, stating that neither president strongly confronted Iran.
While the Obama administration was negotiating the Iran deal, Bolton wrote an op-ed in the New York Times, suggesting that the United States bomb Iran to prevent an arms race in the Middle East. Analysts believe Bolton will continue to take a hard line on Iran and advise the president to cancel the deal and reinstate sanctions.
Like Bolton, CIA Director Pompeo has been a staunch critic of the Iran deal. As a Kansas congressman, Pompeo regularly criticized the Obama’s foreign policy. While leading the CIA, Pompeo said he was excited about the possibility of repealing the Iran deal. When President Trump refused to recertify the deal in October, Pompeo said that “the U.S. intelligence community and Treasury Department could make it harder for Tehran to meddle in regional affairs by exposing Iranian businesses that have ties to the nation’s elite security force.” In another instant, Pompeo compared Iran to ISIS.
As the president’s new advisers, Pompeo and Bolton will lead the charge to scrap the Iran nuclear deal on the junk heap of American foreign policy and advocate for imposing new sanctions.
The Obama-era deal repealed existing economic sanctions on Iran, allowing an increase in oil exports from the country. Once that bargain is canceled and new sanctions approved, oil exports from Iran will decline, which, coupled with the precipitous drop in production in Venezuela and the continued output restrictions agreed to by OPEC and Russia, will put a noticeable squeeze on global supplies. Oil prices have already increased because of recent anti-Iranian comments by Saudi Crown Prince Mohammed Bin Salman.
The good news for consumers in the United States is that shale oil production continues to climb and could make up for the loss of Iranian oil in the world market. In the medium term, rising U.S. oil output should prevent a significant rise in oil prices.
A key component of President Trump’s foreign policy is unraveling the previous administration’s foreign policy. Following this directive and led by new advisors, Trump should be expected to decertify the Iran deal. With Iranian oil off the market, prices will increase, benefiting U.S. shale producers, but not to the point where Americans should notice the rise. Under Bolton’s and Pompeo’s guidance, President Trump will continue to favor domestic production and pursuit of his goal of American energy dominance.
