Monday, March 26,
2018 06.32PM / By Nick Cunningham of Oilprice.com
President Trump fired his National
Security Advisor H.R. McMaster on Thursday and replaced him with a staunch
proponent of war. The appointment significantly raises the odds of a clash
with Iran and North Korea, and almost certainly will result in the withdrawal
of the U.S. from the Iran deal.
John Bolton was a fierce supporter of
the 2003 war in Iraq, and comes to the White House as an unreconstructed
proponent of the invasion. In fact, one would be hard pressed to name a
proposed war that he has not supported. In the past, he has repeatedly
advocated for military conflict in both North Korea and Iran, preemptively, and
that remains the case today.
Recently, the U.S. has been
negotiating with European officials over how to amend the Iran nuclear deal to
appease Donald Trump. Germany, the UK and France have entertained stepping up
some measures –related to Iran’s ballistic missiles program, the end date of
the limits on the nuclear program and the authority of international nuclear
inspectors – with an eye on keeping the U.S. in the agreement.
The WSJ reports
that the U.S. wants the deal extended in perpetuity, but Europe says that would
amount to a renegotiation of the entire deal. The sticking point leaves plenty
of room for the hardline U.S. government to find a pretext to withdraw from the
deal. That was the case before John Bolton’s appointment. With John Bolton now
chirping in Trump’s ear, few expect the Iran deal to survive in Washington. Last year, Bolton released a blueprint
on how the U.S. could and should get out of the deal, a deal that he called “a
threat to U.S. national-security interests.” In the plan, he says “unilateral
U.S. sanctions should be imposed,” and he also said “we will discuss military
options.” He explicitly says the U.S. should provide assistance to a variety of
opposition groups in Iran, stopping just short of a full-throated endorsement
of regime change, although that was clearly implied.
Needless to say, Bolton’s appointment
as National Security Advisor likely means the end of U.S. involvement in the
Iran nuclear deal. The deadline to extend a waiver on sanctions is May 12.
"Bolton is an unrepentant
advocate of regime change against Iran and his demands for the May 12 ultimatum
-- in a practical sense -- will be sharper than those of McMaster,"
Richard Nephew, a principal deputy coordinator for sanctions policy at the State
Department during the Obama administration, told S&P
Global Platts. Nephew authored a recent report that estimated that Iran could
lose 400,000 to 500,000 bpd if U.S. sanctions were re-imposed on Iran.
Trump seemed to telegraph his
intentions on Tuesday. "A lot of bad things are happening in Iran,"
Trump said on March 20 just before meeting with Saudi Crown Prince Mohammed bin
Salman. "The [Iran nuclear] deal is coming up in one month and you will
see what happens."
Ultimately, at this point, U.S.
sanctions on Iran are likely, and in a worst-case scenario the U.S. could begin
exploring military options against Iran. To say the least, the risk of war is
much higher after Bolton’s appointment.
Meanwhile, a similar scenario is
possible for North Korea. Bolton wrote
an op-ed in February titled “The Legal Case for Striking North Korea
First,” and last year he said
on Fox News "I think the only diplomatic option left is to end the regime
in North Korea by effectively having the South take it over." President
Trump’s much-hyped sit-down with North Korea’s Kim Jong-un may not happen, and
the odds of a military strike are now much higher. If Trump meets Kim Jong-un, it should
“be a fairly brief session where Trump says: ‘Tell me you have begun total
denuclearization, because we’re not going to have protracted negotiations. You
can tell me right now or we’ll start thinking of something else,’” Bolton said
earlier this month. That “something else” was clearly a reference to a
preemptive military strike against North Korea.
The U.S.-North Korea summit is
supposed to take place in May, the same month that the U.S. could scrap the
Iran nuclear deal and re-impose sanctions. May is shaping up to a fateful month
for U.S. foreign policy.
The fallout could have wide
ramifications for the oil market – a lot of oil supply could be put at risk
this year after the dramatic reshuffling of the U.S. government over the past
two weeks, which has created “the most radically aggressive foreign
policy team around the American president in modern memory,” according to the
New York Times. Moreover, it could occur at a time
when the oil market is getting tighter anyway, raising the odds of much higher
prices. "We are only 3-4 weeks away from peak refinery maintenance, after
which crude and product demand should accelerate ... Global inventories are
already at the bottom end of the five-year range. With the inventory cushion
largely gone, oil prices will likely be more sensitive to geopolitical risk
factors," Morgan Stanley said
in a research note. "There are sufficient reasons to expect oil prices to
strengthen further from here, and we stick with our (Brent) $75 per barrel call
for Q3," Morgan Stanley said.
That could be a conservative estimate
if Bolton succeeds in pushing the Trump administration in a much more hawkish
direction, as seems likely.
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