U.S. President Donald Trump waves to reporters as he arrives for the G7 summit, Monday, in Evian-les-Bains, France.Julia Demaree Nikhinson/The Associated Press
Before I get into everything that’s wrong with the deal between Iran and the United States – and there’s a lot to dislike and to be concerned about – let’s start with the positive.
Your car’s gas tank will be happy. Ditto your investment portfolio. At least in the short term.
The ceasefire agreement that the U.S. and Iran say they are prepared to sign on Friday would reopen the Strait of Hormuz. The waterway that normally carries roughly 20 per cent of the world’s oil, and a hefty share of global natural gas and fertilizer, has been almost entirely closed since Feb. 28.
It’s unclear how long it will take to restart the maritime highway, but to the extent that the threat of Iranian attacks is removed, exports of oil, gas and fertilizer should ramp back up in the coming weeks.
On Monday, the futures price for August delivery of Brent crude oil, the international benchmark, fell by nearly 5 per cent, to US$83.15. In the past week it has fallen by more than US$10, in anticipation of this agreement.
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However, global oil prices, and natural gas prices outside North America, still have a long way to fall to return to pre-war levels. At the start of the year, Brent crude was trading at around US$60. That’s more than 25 per cent below where it closed on Monday.
As for the European natural gas benchmark known as Dutch TTF, its price fell nearly 9 per cent on Monday – but that’s still more than 50 per cent more expensive than at the start of the year.
The reopening of the strait, to the extent that happens and to the degree that it holds, will lower inflation. That would be a gift to central bankers, notably Kevin Warsh, the newly appointed chairman of the U.S. Federal Reserve, and might forgo a need to raise interest rates.
Lower energy costs, lower inflation and a Fed on hold will tend to provide yet more juice for Wall Street, and stock markets around the world.
Downward pressure on commodity prices, inflation and interest rates; lower energy costs for consumers; a boost for corporate profits and equity valuations – hey, what’s not to like?
But all this will come at a price. U.S. President Donald Trump is ready to pay the price, and compel others to pay on his behalf, to secure what he and the world already had, for free, prior to Feb. 28.
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The text of the U.S.-Iran agreement was not yet public on Monday afternoon, but statements from the two sides give a pretty good sense of what’s in this deal, what is to be negotiated later – and how most of the original U.S. war aims have gone by the wayside.
The agreement is primarily concerned with reopening the Strait of Hormuz – which was open for decades prior to Feb. 28. The only country in the region that faced limits on its exports prior to the war was Iran, which was under crippling international sanctions.
In an interview with CNBC on Monday, Vice-President JD Vance said that if Iran meets certain unnamed benchmarks on its nuclear program, the U.S. would turn Iran into an “unsanctioned economy” – a lifting of sanctions that would provide a huge economic payoff to the Iranian regime.
But prior to Mr. Trump’s first-term decision to withdraw from the nuclear agreement reached under President Barack Obama, there were already strong limits on its nuclear program, backed by inspections. And prior to Mr. Trump’s war, the strait was open, U.S. allies in the Gulf were not under attack, and Iran’s economy was being strangled by sanctions.
Art of the Deal Donnie is offering to pay off Iran in return for things – an open Strait of Hormuz; a nuclear-limited Iran – that he inherited for free.
Mr. Trump is like a real estate deal-maker who dumped a property that he deemed worthless, and is now desperately trying to repurchase it at a much higher price.
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If you want more proof of who won the war, consider what has happened to the relationship between the U.S. and Israel.
The war started with their interests aligned, and Mr. Trump saying that his war aims included freedom for the Iranian people, curbing Tehran’s missile program and limiting its ability to back proxy forces such as Hezbollah.
None of that appears to be part of the ceasefire or the framework for future negotiations.
Instead, Tehran has insisted that, in return for a ceasefire, Mr. Trump compel Israel to stop its attacks on Iranian-back Hezbollah in Lebanon – even though Hezbollah, earlier this month, rejected a ceasefire agreed between Lebanon and Israel.
In response, Mr. Trump has publicly and repeatedly put pressure on Israel in pursuit of an Iranian policy goal.
Who has won the war and who has lost will become clearer as the 60-day ceasefire comes to its end in August.
If Iran is being intransigent or making new demands in two months, will Mr. Trump dare restart an unpopular war in the run-up to the U.S. midterm elections? Or will he offer Iran another ransom in order to avoid a spike in oil prices?
I know which outcome I’m betting on.