Oil: Could Iran Risk Reverse Options’ Bearish Signal?

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The removal of Secretary of State Rex Tillerson and replacing him with CIA Chief and former Congressman, Mike Pompeo, has implications for nearly all aspects of U.S. foreign policy, including Middle East relations.  More specifically, Tillerson supported the Iran nuclear deal (Joint Comprehensive Plan of Action or JCPOA), whereas Pompeo was one of its fiercest opponents on Capitol Hill.

In addition to the recent changes at Foggy Bottom, there are also numerous press reports that White House Chief of Staff John Kelly might be paving the way for the return of National Security Advisor H.R. McMaster to the Pentagon with his elevation to the rank of four-star general.  McMaster has been a supporter of the Iran nuclear deal, albeit a lukewarm one.  Among his possible replacements is former UN Ambassador John Bolton, also a critic of the Iran nuclear deal.

Whatever one thinks of the recent (and rumored) personnel changes and the JCPOA itself, the negotiation of the deal in 2014 and its eventual adoption in July 2015 may have contributed to the collapse in oil prices by reducing the risk premiums embedded in WTI, Brent and other benchmarks. The easing of Middle East tensions that JCPOA came to symbolize may have led oil prices to catch up with economic reality on the downside.

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