President Donald Trump says he will announce his long-awaited decision on the Iran nuclear deal on Tuesday, likely kicking off a risky and complicated effort to bring international pressure on Tehran.
Trump is widely expected to withdraw the United States from the agreement. That's just the first step in a process that presents the White House with several options for exiting the deal. The ultimate effect on U.S. alliances, trade partnerships and the oil market will depend on which path the administration takes.
The exit process begins with a deadline on Saturday. The 2015 accord lifted sanctions on Iran in exchange for Tehran accepting limits in its nuclear program. Iran negotiated the agreement with China, France, Germany, Russia, the U.K. and the United States.
Those countries agreed to periodically suspend sanctions on Iran so long as the Iranians complied with the terms of the deal, which include international inspections. The United States faces its next sanctions decision deadline on May 12. The next waivers for broader sanctions on Iran's economy don't come up until July 11.
International inspectors and signatories to the deal, including the United States, have consistently certified that Iran is complying with the agreement, but Trump has decided the accord itself is flawed. He warned in January that he would not suspend the oil sanctions on May 12 unless Europe agreed to revise the terms of the accord. Such a trans-Atlantic deal has not emerged.
By refusing to waive sanctions without proving that Iran is violating the deal, Trump would effectively drop the agreement made by the United States. That affects the rest of the world because Trump can use powerful U.S. sanctions tools to compel foreign buyers to stop importing Iranian oil.
"This scenario is most likely because Trump views Iran in the absolutely evil category, and he feels viscerally about it," analysts at risk consultancy Eurasia Group said in a briefing on Monday.
"The decision allows Trump to leave the 'terrible' nuclear agreement while also increasing leverage on the European signatories and Iran to reach a 'better,' comprehensive agreement."
These so-called "secondary sanctions" allow Trump to block foreign companies from accessing the U.S. market — the world's largest — unless they comply with sanctions against Iran.
U.S. law empowers the Treasury Department to sanction foreign financial firms that transact with the Central Bank of Iran unless that firm's home country agrees to significantly reduce Iranian oil purchases.
The law doesn't spell out what "significant" means, but the Obama administration asked countries to throttle back imports of Iranian crude by 20 percent every 180 days. Trump is not required to do the same, but analysts say it would present a ready-made option and give his administration cover to continue talks with European countries.
"While President Trump will spin ending the waivers as 'leaving the deal,' we expect the White House will allow a 6-month transition period during which negotiations will continue while Treasury determines compliance metrics," risk consultancy the Rapidan Group said in a note to clients.
If Trump follows this model, it would likely push off the majority of Iranian export reductions until the first half of next year, according to RBC Capital Markets.
But if Trump orders buyers to immediately cut off Iranian crude imports, Tehran's oil exports are more likely to taper off by year-end, RBC said in a research note on Friday.
What happens next in any scenario depends on the response from Iran and international oil buyers, as well as OPEC, Russia and other major oil-producing nations, which are currently capping output to drain a global glut of crude oil.
Analysts expect renewed sanctions to take as many as 500,000 barrels a day off the market, about one-third the impact of sanctions under Obama. They say China is unlikely to comply with sanctions, and other big buyers of Iran's oil, including India and Turkey, could push back, too.
In the least disruptive scenario imaginable, Trump would reimpose sanctions but signal the United States will not penalize other countries that do business with Iran. Since unilateral U.S. sanctions prohibit American companies from transacting with Iran, it would maintain the status quo.
"This approach would allow Trump to fulfill his campaign promise to withdraw from the deal while also skirting the complexities of imposing a new sanctions regime and causing a severe strain with Europe at a time when trans-Atlantic trade tensions are already elevated," the Eurasia Group analysts wrote.
However, Eurasia Group considers that the least likely scenario.