Macro/energy update (Iran sanctions)

Recent/upcoming developments… President-elect Trump said during the campaign that he plans renew “maximum pressure” on Iran, which would involve increasing sanctions to reduce its oil sales in an effort to weaken the regime.  Separately, Trump has recently told Israeli Prime Minister Netanyahu that he is worried Iran could soon field a nuclear weapon, and his transition team has mulled the possibility of striking Iran’s nuclear facilities, among other options.  Trump advisors claim he has no interest in new wars, but when asked if he would go to war with Iran, a country that tried to have him assassinated, Trump said, “Anything can happen.” Meanwhile in Iran, merchants, oil workers, nurses and pensioners have protested over inflation and delayed payments. Writing in Foreign Affairs, Iran’s vice president for strategic affairs Javad Zarif said the country’s president Masoud Pezeshkian is “ready to manage tensions with the [U.S.].”

* Transition team member Brian Hook, who worked on Iran issues in Trump’s first term, said Trump has “no interest” in overthrowing Iranian leadership. Rep. Waltz (R-FL), who will serve as Trump’s national security adviser, said that “[Trump’s] mandate overwhelmingly was not to drag us into Middle Eastern wars.”

* In addition to the maximalist option of the U.S. military striking Iranian targets, the Trump team is considering sending more U.S. forces to the region as a deterrent while selling weapons to Israel that it could use to strike Iran.  Another option under consideration is to threaten military force while ramping up sanctions to coerce Iran to negotiate on its nuclear weapons program, the same tactic Trump used with North Korea.  Israeli Minister of Strategic Affairs Ron Dermer, who met with Trump in November, believes Trump would support an Israeli military strike against Iran’s nuclear facilities.

* Trump transition officials say that in addition to enforcing existing sanctions more robustly than the Biden administration, they will also re-designate the Iranian-backed Houthis as a terror group and will prohibit countries that buy Iranian oil from purchasing U.S. energy. Other options include sanctioning foreign ports that accept shipments of Iranian oil, refineries that process it and entities that transport Iranian oil, including in ship-to-ship transfers.  Another option is to impose tariffs on goods and services imported from countries that import Iranian oil.

Our outlook… Trump will likely impose/increase enforcement of the aforementioned sanctions, with at least some action potentially taking place in the initial days after his inauguration.  We may also see statements reminding Iran of the U.S. military’s capabilities in an attempt to persuade Iran from pursuing a nuclear weapon.  Throughout his first term, Trump shied away from using military force but embraced blunt diplomacy.  As one of his key promises was to avoid new wars, it is likely that Trump would seek a forceful diplomatic path first before approving military action against Iran.  This is made even more likely by the fact that Iran has signaled an openness to negotiations.  If Trump does believe that Iran’s nuclear facilities must be struck, it is more likely that he would seek to equip Israel to do the job by selling it the requisite weapons.  This would serve two purposes: boosting U.S. military sales, a favored tactic of the first Trump administration, and avoiding direct U.S.-Iranian confrontation.  Trump would likely only use military force against Iran in retaliation for Iran or its proxies striking U.S. troops or if a broader regional war broke out.

* The history of Trump’s approach to Iran has been mixed.  In the final days of his first term, Trump asked his advisors for options to strike Iran’s nuclear facilities, indicating that he would be supportive of a strike on Iran’s facilities.  Trump in 2019 also said that “Iran can NEVER have Nuclear Weapons, not against the USA, and not against the WORLD!” another indication that he would support an Israeli or U.S. strike on Iranian nuclear facilities.  While Trump showed openness to a U.S. strike on Iran, it is still more likely that a strike would come from Israel – not the U.S. – as Trump throughout his tenure was resistant to striking Iran, saying that he called off a planned retaliatory strike on Iran due to a high estimate of Iranian casualties.  “[Iran] shot down an unmanned drone flying in International Waters,” Trump tweeted in 2019.  “We were cocked & loaded to retaliate last night on 3 different sights when I asked, how many will die. 150 people, sir, was the answer from a General. 10 minutes before the strike I stopped it”.

Watch for these developments… Sen. Rubio’s (R-FL) confirmation hearing for his nomination as Secretary of State is scheduled for next week (1/15) has the potential to provide an early view of how the Trump administration will approach Iran.  We are looking for whether Rubio echoes his prior hawkish posture towards Iran and what kind of encouragement Senate Republicans provide to the Trump team to impose more aggressive energy sanctions.