Trump Tosses Iran Policy to Congress

On Thursday, President Trump will make a speech on Iran in which he is expected to not certify that Iran is in compliance with the Nuclear Deal, as required every 90 days. This will give the Congress 60 days to take up the issue of putting sanctions back in place. At this juncture, a return to the status quo ante “the Deal” is impossible given the positions of the other P5+1 countries. But, Congress may take other steps to turn up the heat on Iran.

Tensions Rise as Kurdistan Votes

The autonomous Kurdish region of Iraq voted for independence last week in a resounding – but non-binding – referendum. Baghdad has dismissed the vote. Turkey and Iran, with large Kurdish populations themselves, have threatened a blockade. Turkey’s threat to shut the Kirkuk-Ceyhan crude oil pipeline puts Kurdistan’s nearly 600,000 b/d of crude exports at risk. Ongoing tensions have already encouraged a temporary run-up in Brent prices, and will keep a small geopolitical premium on the price of crude.

Tensions with North Korea will Continue

Current tensions between North Korea and the international community, but especially the U.S., South Korea and China are bound to continue and threaten military conflict that could escalate to a previously unthinkable outcome. While oil and gas trade with North Korea is quite small, any threat of military action in the region will impact shipping and lift the price of waterborne goods.

North Korea – Strategic Misperceptions

This morning the Trump Administration indicated that U.S. policy towards North Korea is moving from “strategic patience” to “strategic accountability”. That summary of the current situation seems far less bellicose than recent statements by either side. Moreover, U.S. policy is focused on encouraging China to step in more proactively, which gives the impression that U.S. direct action is still arm’s length away. Yet, as discussed below, misperceptions on both sides could quickly lead either side to escalate from statements to action.

Qatar Crisis Hard to Resolve

This is more than a diplomatic row among GCC members. Perhaps emboldened by President Trump’s visit, Saudi Arabia and its allies have declared if you are with Iran (or specific radical Sunni groups), you are against us. This effort to delineate sides in the region cannot be easily reversed without substantial outside pressure. Expect a geopolitical premium to creep into energy prices as this dispute continues.

Weekend in the Gulf Changes Little

Notwithstanding the pageantry of the U.S. President visiting Saudi Arabia and the enthusiasm of young Iranians hailing their moderate President’s reelection, little changed in terms of the region’s political stability, the battle with ISIS or oil policy this weekend. The clearest signal from the weekend was the public and forceful assertion that the U.S. has allied itself with the Saudis versus Iran, which can only have stoked the age-old rivalry. This should not impact OPEC dealings this week as Iran’s production is near a top, but it is likely to have repercussions down the road when (and if) Iran’s productive capacity rises.