What Are the Implications of Iran Nuclear Deal Exit?

In 2015, Iran and a group of leading nations including the United States, China (FXI), Russia, Germany (EWG), France, and the United Kingdom signed the landmark Iran nuclear deal. The deal was an arrangement among these countries to limit the number of centrifuges and equipment that are used to enrich uranium in Iran. As part of the deal, Iran also agreed to allow the United Nation’s International Atomic Energy Agency (or IAEA) to monitor its nuclear facilities including the two underground enrichment sites at Fordow and Natanz. This deal came into effect in July 2015 and was formally known as the “Joint Comprehensive Plan of Action” (or JCPOA).

The deal struck during the Obama administration has been useful in containing Iran’s nuclear weapons program. President Trump had been complaining that the deal was not fair and threatening to scrap the deal, which happened on Tuesday, May 9. The primary reason why Trump thought the deal was unfair seemed to be the sunset clauses, which would end restrictions on Iranian centrifuges in ten years and restrictions on uranium enrichment in 15 years. This action from President Trump seems to be a part of his “art of the deal” playbook to negotiate better terms and assert his influence in the Middle East.

So far, the other parties involved in the deal have announced that they would continue to be part of the deal and would seek exemptions from any sanctions imposed by the United States. The Iranian president, Hassan Rouhani, said that the deal could survive without the US, but the Iranian foreign minister, Javad Zarif, said that Iran could leave the deal if the US steps out. No one knows what future actions Iran will take, and the US exit has left the gates open for the resurgence of geopolitical uncertainty. In the remaining parts of this series, we’ll analyze the impact of the recent developments on markets (VOO) and how the developments could affect oil prices (USO) and volatility (VXX) in global markets.