The Iran Deal Is Terminated
What’s Going on Here?
As expected, President Donald Trump has chosen not to extend sanctions relief for Iran, withdrawing the U.S. from the Joint Comprehensive Plan of Action (JCPOA), otherwise known as the Iran nuclear deal. Oil is down -1.6%, having traded lower throughout the day, and the S&P 500 Index is down 30bps on the news.
The deal was brokered under the previous presidential administration and included China, France, Russia, the UK, and the U.S. as co-signatories, along with Iran. JCPOA strictly limited Iran’s nuclear program, including intrusive monitoring by the International Atomic Energy Agency (IAEA), in exchange for removal of economically crippling sanctions. Many foreign leaders have lobbied the President to preserve the deal. Today, however, the U.S. has nonetheless chosen to abrogate the deal, in hopes of replacing it with a more extensive agreement.
It’s difficult to say what impact this will have on financial markets beyond today’s initial reaction. The lack of a deal further raises geopolitical risk in the Middle East, while also curtailing Iran’s petroleum exports. Both factors could contribute to higher oil prices. Longer term, the U.S. exit from the deal may hinder diplomatic relationships with allies and adversaries alike, potentially posing trouble for future deal brokering.
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The International Atomic Energy Agency (IAEA) is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organisation on 29 July 1957.
Joint Comprehensive Plan of Action. On July 14, 2015, the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States), the European Union (EU), and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful.
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