US pullout from Iran deal could have positive effects on oil market

Bloomberg/Fuel Fix:
For those in the oil market, it may seem like there's no end to U.S. events determining the course of prices these days. Donald Trump's sudden firing of Rex Tillerson is unlikely to prove an exception.

The president's decision to nominate CIA Director Mike Pompeo as Secretary of State to replace the former Exxon Mobil Corp. chief executive may have big ramifications for the crude market, according to Fereidun Fesharaki, chairman of energy consultant FGE. That's because Trump's pick for America's top foreign diplomat is an Iran hawk whose appointment raises the prospect of unilateral U.S. sanctions that target the OPEC member's oil sales.

Oil investors are increasingly being whipsawed by events in the U.S., be it surging American output or Trump's planned tariffs on steel imports that raised the potential for crude pipelines to turn costlier. Booming shale supplies are currently threatening to undo a rally in prices in spite of efforts by the Organization of Petroleum Exporting Countries to curb output and clear a glut.

Now, Trump's latest move is heightening speculation that the U.S. will withdraw from a deal between world powers and Iran, under which international sanctions against the Middle East nation were eased in exchange for it agreeing to curb its nuclear program. That's spurred jitters across markets.

"The choice of Mike Pompeo as new Secretary of State potentially has major implications for the oil market," said Fesharaki, a former energy adviser to the Iranian government. "While Tillerson was seen as one of the voices of restraint in terms of relations with Iran, Pompeo is one of the most outspoken critics of the Iran nuclear deal," he said in an emailed note on Wednesday.
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The pullout could make it even harder for Iran to get financing for rebuilding its oil infrastructure.  Iran's current sales do not appear to be significant.  It should also be noted that the big price declines for oil happened when Iran oil sales were under sanctions.  Opec could take advantage of lower Iran sales to increase its own supply of oil.

The major potential impact of new sanctions on Iran would be reducing its cash flow to sponsor terrorist attacks in teh Middle East.

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