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Europe Responds to U.S. Sanctions Against Iran; What Happens Next?

by | published July 10th, 2018
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Sometimes being in the center of a whirlwind provides an unparalleled vantage point.

As you read this, Marina and I are over the Atlantic, on our way home now that the multi-day summit in Switzerland has drawn to a close.

On Friday, I explained that I was called to the picturesque site of Lausanne, Switzerland on Lake Geneva for meetings on the impending renewal of U.S. sanctions against Iran.

I also told you that I would have more to say about the importance of what transpired there upon my return to the states.

And that’s exactly what we are going to do today because what is happening now is something unparalleled in my four decades of work in the international arena.

And to understand it all, we have to go back to the high-drama that began two months ago…

Europe Confronts Iranian Sanction Blowback

As you will recall, this all began on May 8 when President Trump decided, unilaterally, to pull the U.S. out of the Joint Comprehensive Plan of Action (JCPOA).

JCPOA combined the five permanent members of the UN Security Council (U.S., Russia, China, the UK, and France), Germany, the European Union (EU), and Iran in an agreement to forestall any Iranian move toward weaponizing nuclear development in return for the phase-out of sanctions.

President Trump then double-downed last month by indicating U.S. sanctions would be renewed beginning on November 4. That move would also include so-called secondary sanctions against any foreign company continuing to do business with Teheran after that date. Such actions could include freezing company assets in the U.S. or preventing them from doing business in the American market.

PROFIT OPPORTUNITY
This escalating tension between the U.S. and Iran may be the least of our worries…

Appalling satellite footage has confirmed one of the Pentagon’s worst fears: a situation so dire it could be the driving force behind our next World War.

Hostilities in the South China Sea are growing grimmer by the day, and the Chinese have been developing a deadly new superweapon capable of a sneak attack that could annihilate thousands of Americans.

Meanwhile, the Pentagon has quietly been funneling billions into a new generation of defense contractors… one of them is a tiny company with a top-secret technology straight from the pages of a science fiction novel.

This is something you won’t believe until you see it… click here to see the disturbing satellite images and full story.

As a result, U.S. allies in Europe erupted while Russia and China smiled on the sidelines prepared to pick up the diplomatic advantage.

But the important thing to note is this…

For the first time in over four decades of international work, I have witnessed an American move having no upside, endgame, or fallback.

This will not result in any regime change in Teheran, the impact of economic sanctions will be thwarted by apparent friends in Europe, and Iran will begin reassessing the creation of a nuclear arsenal.

Oh yes, I am sure that North Korea has been following with interest whether to trust the U.S. signature on a treaty.

But I wouldn’t hold your breath for any genuine progress there either.

During the past week, I was ensconced in meetings that began with this view of Lake Geneva:

From this conference room at NICO (Naftiran Intertrade Co.) headquartered in Pully, just outside Lausanne:

NICO is the international oil-trading arm of the National Iranian Oil Co. (NIOC). In addition to NICO and NIOC, my initial sessions also had representatives from the Iranian Oil Ministry.

These were followed over the weekend and yesterday by gatherings with some of my contacts from the international banking and finance community.

Last Friday, foreign ministers of all the JCPOA parties (minus, of course, the U.S.) met in Vienna.

We had the benefit of a direct channel from those proceedings and integrated the developments into our discussions as they were unfolding.

And this is what will happen next…

[Warning]: The economy is on borrowed time (Are you prepared for disaster?)

Threading the Needle

The remaining JCPOA signatory members have agreed to establish an ongoing trading arrangement between Iran on the one hand and the other signatory nations on the other.

My primary interest here is with the status of oil shipments and how this is going to impact the energy sector investment environment.

Nonetheless, the arrangement will involve all trade, not simply that involving oil or natural gas, another export flow that was expected to rise significantly from Iran was liquefied natural gas (LNG) before the Trump decision hit.

This should allow for continued oil shipments to Europe, augmented by Russian and Chinese contract swaps to facilitate Iranian oil trade to other locations.

But the details are remaining elusive.

Several points I discussed before here in Oil & Energy Investor resurfaced in my sessions with the finance folks.

Only this time, they are rapidly becoming official policy.

All oil trade requires pre-finance, insurance, and access to global hard currency exchange.

Given that just about all international oil trades are denominated in dollars, preventing access to foreign banking is tantamount to placing a significant barricade to the trade at all.

This is a major objective of the U.S. sanctions expected to begin on November 4.

European leaders may now be in support of Iran, and in rejection of Washington. But with the secondary sanctions threatening any bank or financial house that does business with Iran, more than European political support is necessary.

As of yesterday, this is what is being hammered out in what amounts to the first European across-the-board direct rejection of U.S. policy…

[Urgent]: North Korea is “Fake News”… this is where WWIII will start

Europe Strikes Back

First, Berlin, London, Paris, and Brussels will approve the Iranian demand that Germany, the UK, France, and the EU agree to an expedited phase-out schedule for European restrictions on Iranian trade.

These are subject, in most cases, to legislate action, but the presumption is that there is wide-based support for the moves.

Second, all the other JCPOA signatories are designing sovereign government protection for Iranian trade in general and oil exports in particular.

This is particularly important for Europe since a third of their oil imports are from Iran.

Third, and more importantly, the signatories will provide government credit support for domestic companies in approved projects with Iran.

This last point will do more than any other factor in lowering the risk for European companies.

Russian and Chinese interests will also be supported by their respective governments.

There, however, projects already carry government support, and are less subject to the credit protection or insurance required in the West.

Fourth, other signatory nations have approved in principle direct transfer of proceeds from their central banks to Bank Markazi, the Iranian Central Bank. This provides an official way to bypass the banking system that is soon to come under siege from American sanctions.

However, this is the decisive conclusion from all of these points…

Navigating Uncharted Waters

The UK, France, Germany, Russia, China, and the EU have embarked on a collision course with Washington.

Attempts to impose U.S. secondary sanctions on European, Russian, or Chinese entities doing business or business finance with Iran will have a domestic sovereign government defense against the U.S.

We are in unchartered waters here.

The supposed defender of Western ideas of freedom for the past seventy years is about to be faced with a coordinated and frontal repudiation by the very “world” it was supposed to champion.

Europe is intent on preventing a nuclear crisis.

On the other hand, Washington seems to prefer reality TV photo ops to substantive diplomacy.

And there is only one word that sums that up perfectly…

Embarrassing.

Sincerely,

Kent

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  1. Ali
    July 11th, 2018 at 00:29 | #1

    A very good comprehensive analysis

  2. Allen Zerkin
    July 11th, 2018 at 03:41 | #2

    This is a fascinating and terrifying report, Kent. Much appreciated. And I especially appreciate your candor in calling out the insanity of Trump’s policy. Americans need to wake up!

  3. July 11th, 2018 at 15:18 | #3

    Appreciate your inside knowledge of world events concerning energy but the President’s decision to revoke
    the IRAN half ass deal, certainly not a treaty, is the right course for the US. Forgetting that Obama/Kerry
    engineered this legacy polishing fiasco, the purpose, which was to delay significantly Iran’s ability to produce nukes, is a joke. Americans know this was a bad deal and support Trump’s actions. So rather than preventing a nuclear crisis, Europe will be enabling Iran to continue moving forward in nuclear production all the while not paying a social economic price. Your views on America’s policies are nothing more than “your views”,
    and regardless of political bias, they are embarrassing and not helpful.

  4. Reuben Lampitoc
    August 18th, 2018 at 12:03 | #4

    I see the Iran fiasco as a prelude to the demise of the US dollar as the dominant currency in the world. Trump’s win only proves that the US can not be a reliable stable country forever. Embarrassing but with grave consequences.

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