Trump's Iran-Decision Did-not and Won't Affect Oil Prices / Commodities / Crude Oil
:UnlessU.S.A. decides to go to War to Impress Stormy Daniels.
The fact of the matter is that U.S.never got close to lifting sanctions on Iran. Yes they nominally allowed trade ofa few things, almonds for example, but they kept the payment systems blocked. Rightor wrong, unless The President is seriously contemplating a Bush-Styleadventure in the Middle East, the decision to leave JCPOA will have littleeffect on anything, except U.S. relations with other world-powers.So far, the markets do notappear to be betting on war, perhaps they suspect The President is simplyseeking attention, nothing new there, but why now? Some commentators havesuggested he’s trying to deflect attention from Stormy Daniels & Co, which soundsfar-fetched but that type of behavior is a common trait of narcissists. Let’s hope not, because as the probesget closer to the bone, the temptation to find an even bigger distraction mayprove irresistible. If there is a war, global oil supplies will likely drop by30 Million Barrels per day (28%), unless a way is found to neutralize Iran’s SUNBURNanti-ship missiles; which can reach the SPM’s in Fujairah.Clear-heads might argue thatrisk is hardly worth the brinkmanship or bravado, particularly on an idea thatappears to have been even less well thought-through than the immigrationfiasco, The Wall, or (allegedly) sending a thug to physically intimidate StormyDaniels.
I live and workin the Middle East, in oil & gas. I like to think I am quite well-informed,but I didn’t even know that the U.S. sanctions against Iran had been lifted. Ichecked, in 2017 EU exported one-hundred-times more goods and services to Iranthan U.S.A. The reason is partly because of “covert” sanctions.
By way ofexample, I help finance building jack-up-barges. Those things have nothing todo with anything military or nuclear; they provide a stable work platform forbrown-field oil-and-gas, much safer than a DP-2. Many suppliers offerthree-to-five years credit, not just on the kit, on the whole boat, if you buytheir equipment. It’s tough to get bankers to crawl out of under the tablethese days, so that’s important. And atleast that way you get to talk to professionals, all bankers want to talk aboutthese days is how to offload the “assets” they got lumbered with, from badloans they made prior to 2015.
For U.S.equipment, always a favored choice for the critical-parts; there was; and stillis, one non negotiable condition, written in the agreement. They would monitorthe AIS on our vessel after it was built, and pull the irrevocable standbyletter of credit (SLC) guaranteeing the loan (tied to the lien), if we strayed onenautical-mile over the line down the middle of the Arabian Gulf, even byaccident.
It’s a bit toughto abide by that rule sailing past the north of Qatar these days, go too closeand the coastguard board, checks all your paperwork, and warns you off (had that happen yesterday),go too far and you get the same treatment with the Iranian coastguard, exceptthey ask you to cook them a three-course lunch, and then they “confiscate” thelap-tops on the bridge, and anything else not bolted-down that they fancy, likebinoculars and chocolates. And you say, ever so politely; “thank you very much”
The people doingbusiness in Iran are mainly European, Chinese and Indian companies; allegedly,I’m not an expert; I don’t know them and I don’t talk to them; cross my heart! Noteven in bars, well perhaps, once or twice, but I can honestly swear that I don’tremember any details.
You have to makea choice; me I’m firmly on the side of America-be-Great-Again, like it was whenJimmy Carter was in charge, and the word “ethics” meant something. But rumorhas it that many companies that went into Iran, won’t stop because U.S. withdrewfrom the deal, why should they, nothing changed.
Unless U.S. manages to pressurize theirgovernments with threats of sanctions; which looks increasingly unlikely; apartfrom Airbus and VW, who will have to comply, but that won’t hurt Iran, COMACwould love to sell their C919, and Peugeot, who has been in Iran for years, andis the dominant player; doesn’t even sell to U.S.A. And there are plenty of EU companies nowoperating in Iran who don’t care, so long as they are provided protection, asthey were when U.S.A. unilaterally slapped sanctions on Libya, example TOTALand SAIPEM.
With regard tooil, the main buyers now are EU and China, which produced 4.8 Million Barrelsper Day (MBPD) in 2017, and consumed 12.8 MBPD; currently Iran sells them 0.5MBPD, but it’s not hard to imagine they could take everything Iran could pump,for a small consideration on price; and prices are going up.
TOTAL is heavilyinto Qatar and Iran, they made a choice; SAIPEM made a choice between ARAMCO and Iran,so now Dynamic Industries and Subsea7 are lining up for the work that SAIPEMleft behind. ARAMCO are spending big, they understand what’s round the corner,but if Iran is closed-down they won’t let SAIPEM back in. You make a choice,they made their choice.
Only last monthBoris Johnson was dreaming Technicolor about the great trade deals a liberatedpost-Brexit-Britain could strike with U.S.A; thanks to the special relationshipthat Mr. Churchill forged, the one where the Brits paid U.S.A. list-price for allthe armaments they bought, and went hugely in to debt, and the Russians gottheirs for free; fair-enough, theRussians killed nine out of ten German soldiers killed in the war; a fact thatthe romantic Brexiteers fondly forget; we killed more civilians than soldiers; thanksto Bomber Harris.
In his latestaddress to the House, Boris was prepared to trash that idea as quickly as heforgot about the NHS-Bus; attacking the hand-that-feeds; risking sanctions onU.K. companies who dare to defy the U.S. line. Which is hardly a great stepforwards in a budding trading partnership designed to kick-start a specialrelationship.
Of coursepolitics is like religion, best not mentioned when travelling far from home;and then there are lies, damn lies, fake-news, and statistics; let’s run thenumbers:
By some reports,President Trump’s decision on Iran caused oil prices to “jump 3%”. Actuallythat was intra-day; the change day-on-day was 1.7%. Since early February, sixty-trading-daysago, oil prices jumped more than 1.7% day-on-day; on fourteen-occasions.Overall the price went up 22%, so more-likely the jumps are part of a trend andare not Machiavellian, and in any case, that looks suspiciously like arising-wedge building.
The day after Benjamin Netanyahu made hispresentation about Iran’s activities and intentions prior to 2015, oil pricesdropped 2.8%. Perhaps markets were unhappy to learn Iran is not doing now; whatthey were doing prior to the treaty, thus the chances of an interruption insupplies is lower than markets previously thought?
I tested theprobability that the reaction by the market to the announcements could equallyhave been by chance, using dummy variables (1 or 0) for the day of the announcement,along with the number of days after 2nd February, and the oil price,as alternate explanatory variables:
Translating thatinto English, the probability something other than Trump’s announcement causedthe 1.7% jump in the price of Brent, is 57.98%. To be able to say with a degreeof confidence that the announcement might likely have caused that jump, theprobability would need to be less than 5%; in other words, there is nostatistical evidence that Trump affected the market in any way.
For Netanyahu’spresentation, when he outlined all the bad things the Iranians were doingbefore they saw sense and signed the treaty, the probability is 4.53%, which iscommonly regarded as “statistically significant”. What that says is the marketsmight have thought that the treaty caused the Iranians to clean up their act,and trade dreams of another holocaust, for the money they could make pumpingoil.
Do the sameanalysis for price changes over four-days, and the probability get’s less. Inother words, what the market appears to think is that Netanyahu proved that thetreaty was a good thing for stability in the world, which is of course bad foroil prices; but they saw President Trump’s announcement as irrelevant to oilprices, as if all he was achieving was attention, which is something we allknow he loves.
Of course ifPresident Trump had plans to go to war with Iran, on account of all the badthings they were thinking, prior to signing the treaty; that would be anotherstory. He hasn’t said that, and so far the markets don’t appear to think he’sgoing to.
But perhapsTrump had another agenda? Perhaps he was trying to deflect attention from thethreats from Stormy Daniels & Co?
https://www.realclearpolitics.com/video/2018/05/09/mika_brzezinski_did_trump_quit_iran_deal_to_deflect_from_stormy_daniels.html
Perhaps if thoseget closer to the bone, he may decide to do about the only thing a U.S.President, has the power to do, without any constraint from pesky tree-huggers orcommunists, which is go to war.
Let’s pray thatthe innocent-looking Adult-film-star can get over the dreadful memories of onenight’s encounter with the now President of the United States of America, manyyears ago; and move on.
Meanwhile,clear-heads may be wondering whether Trumps’ plan was any more carefullythought through, that his attempt to keep Muslims out of the country, which gotthrown out of court on at least two occasions, the Wall idea, Climate Change,Obamacare; or the clumsy attempt to buy the silence of Stormy Daniels, and then(allegedly) send a thug to physically intimidate her.
By Andrew Butter
Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe. Ex-Toxic-Asset assembly-line worker; lives in Dubai.
© 2018 Copyright Andrew Butter- All Rights Reserved
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