How Trump can pull out of the Iran nuclear deal and what it means for markets

Key Points
  • President Donald Trump on Wednesday said he has made up his mind about the Iran nuclear deal, but declined to make his position public.
  • Trump has two clear paths to exit the accord, which lifted sanctions on Iran in exchange for limits on its nuclear program.
  • U.S. sanctions would have a chilling effect on international firms' plans to re-enter Iran, potentially straining relations with allies.
Donald Trump
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Investors will soon know whether the United States will abandon the Iran nuclear deal, a move that could roil energy markets, upend multinationals' plans to re-enter the Iranian market and strain relations with some of America's closest allies and trade partners.

On Wednesday, President Donald Trump said he has made up his mind on the accord, but declined to make his decision public. However, sources tell NBC News that the president is leaning toward punting the issue to Congress, which paves the way for renewed sanctions on Iran and a U.S. exit from the deal.

The commander-in-chief has long criticized the agreement, President Barack Obama's signature foreign policy achievement, as a bad deal for America.

The United States hammered out the agreement in 2015 along with China, Russia, the United Kingdom, France and Germany. It lifts economic sanctions on Iran in exchange for limits on the Iranian nuclear program designed to prevent it from developing weapons.

Trump: We cannot abide an agreement that provides cover for eventual nuclear program in Iran
Trump: We cannot abide an agreement that provides cover for eventual nuclear program in Iran

A U.S. pullout could have major market impacts because U.S. sanctions can be applied to entities that do business with Iran. That effectively establishes a chilling prospect: Re-engage with Iran and you'll be frozen out of the U.S. market.

"The real problem here is the only people that have sanctions worth being worried about are the United States," said Richard Nephew, who served as lead sanctions expert on the team that negotiated the deal.

Even if European leaders sought to protect their multinational corporations, these businesses primarily react to market forces and risks, said Cliff Kupchan, chairman of risk consultancy the Eurasia Group.

"There, I think the Iranians are on much weaker ground. It's a promising small emerging market compared to the world's largest market. You choose," he said.

Renewed sanctions on Iran's energy sector could cut off its oil supplies, potentially boosting oil prices. That would bolster earnings for oil companies, but raise energy costs for consumers and businesses.

European oil majors seeking to jointly develop Iran's oil and natural gas fields, such as France's Total, might also retrench. Boeing, which is allowed to sell aircraft to Iran under the deal, would potentially drop plans to deliver planes to the national air carrier.

Trump's path forward

Assuming Trump does not announce a sudden withdrawal from the deal, there are two ways he could trigger a pullout.

Under U.S. law, the president must certify to Congress every 90 days that Iran is complying with the terms of the agreement. The next deadline is Oct. 15. Trump has twice affirmed Iran's compliance, but only reluctantly, according to news reports.

Should Trump refuse to certify, Congress will have 60 days to decide whether to restore some or all of the sanctions against Iran that the United States agreed to waive under the deal. If lawmakers resume sanctions, that would essentially trigger a U.S. exit from the deal, formally known as the Joint Comprehensive Plan of Action.

"If we do that, we are in violation of our obligations under the JCPOA, which is contingent upon us continuing to ... keep the waivers in place," said Nephew, now a senior research scholar at Columbia University's Center on Global Energy Policy.

Trump's tough talk at UN didn't sound like leader of the free world: Security analyst
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On Wednesday, seven Democratic senators wrote to top Cabinet officials requesting any information that would lead them to believe Iran is no longer in compliance. The lawmakers noted that Paul Selva, vice chairman of the Joint Chiefs of Staff, told Congress in July that Iran was abiding by the terms of the deal.

"We are unaware of any information in the interim that would argue for a change in those determinations in October," the senators wrote.

If Congress does not restore sanctions, Trump has another opportunity in January, the next deadline to continue waiving the sanctions under the JCPOA.

Under the international accord, signatories must offer evidence that Iran is violating the explicit terms of the deal in order to restore sanctions. Snapping back on sanctions without just cause would threaten to put the United States on a diplomatic collision course with the European Union, Russia and China.

Those countries maintain Iran is complying with the terms and the deal is doing its job of preventing Iran from developing nuclear weapons. The International Atomic Energy Agency, the body that carries out inspections of Iran's nuclear facilities, also confirms Iran is in compliance.

Renegotiating the deal

It is also possible that Trump will announce that he wants to renegotiate part of the deal. In recent days, administration officials have emphasized the fact that key aspects of the deal are only in force for 10-15 years.

"Most importantly, the agreement comes to an end, and so we can almost start the countdown clock as to when they will resume their nuclear weapons capability," Tillerson told Fox News on Tuesday.

But extending the duration of those provisions or making them permanent is a "total non-starter" for Iran, according to Helima Croft, global head of commodities strategy at RBC Capital Markets.

Nephew says it is possible Trump will refuse to certify Iran's compliance in a bid to place pressure on its leaders to renegotiate. But he warns that Trump risks losing control of the situation by injecting uncertainty into it.

"How many times have you watched a football game and the play breaks down because somebody tripped or there's more resistance than you thought on the line?" he said.

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