Trump's options on Iran Trump's options on Iran Trump's options on Iran

Trump's options on Iran

Ole Hansen

Head of Commodity Strategy

The waiting/guessing game is almost over after President Trump yesterday tweeted that a decision on the Iran nuclear deal will be made today from the White House at 18:00 GMT. Since the president back in January said he was putting the  “worst deal ever” on notice, a geopolitical/non-fundamental risk premium has been built into the price of oil. 

Crude oil has rallied by 20% from the February low on a combination of geopolitical focus, strong global demand, an ongoing collapse in Venezuelan production together with strong production cut discipline led by Russia and Saudi Arabia. Over the coming days, however, the outcome of Trump's decision will provide us with an idea about whether the built up risk premium has been justified. On that basis tonight’s announcement could potentially be the biggest event since the December 2016 Opec/Russia agreement to curb oil production in order to support the price.

A potential binary market reaction awaits the market today as the outcome of Trump’s decision on Iran risks sending the market even higher or triggering a correction, initially to $71/b on Brent crude oil:

US iran crude oilSource: Saxo Bank

At stake is the June 14, 2015 deal between Tehran and six world powers that lifted sanctions against the Islamic Republic in exchange for limits on the Iranian nuclear programme. If Trump abandons the deal, he risks a spike in global oil prices that could end up being counterproductive given the impact on global growth and inflation. While the other members of the deal remain in favour of its continuation, the reintroduction of US sanctions would hurt Iran's ability to transact in dollars. Even though Iran does not export any oil to the US, it could on that basis reduce, or potentially completely remove, or at best reduce demand from US allies in Europe, Japan and South Korea – just like we saw between 2012 and 2015, when Iran was sanctioned. 

 US iran crude oil

The US, Israel and Saudi Arabia view the deal as flawed as it allows Iran to build nuclear weapons following a 10-year moratorium while at the same time giving Tehran the economic power to fund terrorist organisations in Syria, Lebanon and Yemen. The lifting of sanctions at the beginning of 2016 helped trigger a one million barrels/day increase in Iranian oil production to 3.8 million b/d. A reintroduction of sanctions without seeing other Opec members increase production could remove an estimated 300-500,000 barrels/day of Iranian barrels.

There are multiple options available to President Trump which makes this such a binary event where the price could move sharply in either direction. The three most likely options currently being mentioned are:

1) Waiver the sanctions again while allowing time to renegotiate the deal
2)  A soft exit being the refusal to waive sanctions on Iran’s oil export. It would give companies 180 days to wind down their deals before sanctions are implemented. Furthermore it would provide the US and Europe more time to find a common ground. 
3) A hard exit which could see Trump remove the waiver with immediate effect 

Adding domestic US politics to the equation, option 2 could potentially be the best choice for a president who needs to deliver a tough response but at the same time also has a fight for survival on his hands later this year. The next midterm election is due on November 6 and it includes all 435 seats in the House of Representatives, and the full terms for one-third of the 100 seats in the Senate. The election has increasingly become a battle for his survival given the risk of a democratic-led majority opting to start impeachment procedure. 

On that basis a continued sharp rise in crude oil prices due to Iranian supply disruption carries the risk of further raising the cost of gasoline at the pumps. The national average US gasoline price, currently at $2.81 has risen by 20% during the past year and already trades at the highest for this time of year since 2014. Seasonal higher prices are expected during the coming months when the annual summer driving season boosts demand. A sanctions-related spike in oil prices could therefore add further pressure on US motorists. A move above $3 will attract some unwelcome attention at a time where middle-class voters as a whole are already feeling the impact of higher Medicare bills and rising mortgage rates,  a development that would undercut Trump’s populist appeal.

Ahead of today’s announcement around 16:00 GMT the US Energy Information Administration will release its monthly “Short Term Energy Outlook”. While unlikely to receive much attention, the market will nevertheless look out for any major changes in its outlook for non-Opec supply, especially from US producers and global demand.

US iran crude oil


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992