Trump’s Iran Decision May Backfire With Political Base if Gas Prices Rise

C: White House

When Donald Trump yesterday announced he was withdrawing from the Iran nuclear deal, the President once again showed his unbridled ability to make the world a much more dangerous place in the pursuit of his own political and selfish self-satisfying ideology.

In the short-term his political base may be happy, but in the long term, once again Trump has shown that by opening his mouth he has shot himself in the foot.

Not only has he emboldened the hard-liners in Iran, he has alienated long term strategic allies in Europe, and in doing so, in the words of the New York Times, raised the “prospect of a trans-Atlantic clash as European companies face the return of American sanctions for doing business with Iran.”

As the Times continues: “Mr. Trump’s decision will test his already frayed relationship with European leaders.”

In a joint statement, President Macron of France, Chancellor Merkel of Germany and Prime Minister May of Britain said that the deal remained the “binding international legal framework for the resolution of the dispute.”

There is no doubt that some European energy companies, notably Shell and Total will be hit by newly imposed sanctions.

Quartz magazine outlines how “Donald Trump’s decision to exit the Iran nuclear deal and reinstate sanctions could cost some of Europe’s biggest companies billions …Energy giants like Total and Royal Dutch Shell have lucrative agreements to work with Iran”.

Indeed, Total is working on the $3.8bn South Pars project in Iran in the world’s largest gas field.

How Total will be affected remains to be seen, because, as the Guardian notes: “The European Union has moved to protect the 2015 Iran nuclear agreement by vowing to take steps to immunise European firms doing business with Tehran from any US sanctions.”

Also today, France said it would “do everything possible to protect European businesses”.

The paper adds that “Patrick Pouyanné, the chief executive of the French energy firm Total, has already called for the EU to pass a blocking statute, similar to that passed in the 1990s to protect EU firms from US sanctions.”

No matter what happens with Total, the oil price was always going to rise at the prospect of less oil on the market in the short and long term.

The Financial Times outlines how the oil price “has shot to its highest in more than three years,” in response to Trump’s announcement. Earlier today, Brent Crude was up three per cent.

And this is where the rub comes in for Trump’s political base. They are probably going to have to pay more for Trump’s ideological stupidity.

As Time magazine points out today, the “one country the sanctions could also hurt that he didn’t mention: the United States …  the reduced Iranian supply could lead to sustained high oil prices and further geopolitical instability, in turn contributing to inflation and slowing economic growth at home”.

They add that: “Americans consumers may soon notice the pinch. Retail gas prices have ticked up and are expected to be at the highest summer levels in four years, according to a projection from the Energy Information Administration.”

Greg Sharenow, an executive vice president at PIMCO, an investment management firm, tells the magazine that: “The consumers are going to shoulder the bill. The U.S. economy will face headwinds from prices that will come as a natural result of this.”

Meanwhile, back in the UK, the leader of the Liberal Democrats has warned consumers to be eady for an “oil shock“.  Many people warned Trump that this would happen, the President just did not listen.