After a weekend of threats, the rhetoric between the U.S. and Iran could ramp up even more in early August as a first round of sanctions on Iran is set to kick in—and that could create even more oil price volatility.

There’s a risk too that Iran in the near future could use the introduction of sanctions as an excuse to restart ts nuclear program, which it agreed to end in 2015 when the U.S. and five other nations agreed to lift sanctions. President Donald Trump withdrew the U.S. from that agreement in May and said the U.S. would reinstate financial sanctions. The other countries — China, Russia, Germany, France and the U.K. so far remain in the deal with Iran, and they have been making efforts to limit the impact of sanctions.

“August 6th is the date that we’ll know whether the Europeans made any progress on work around arrangements. The Iranians are having a currency collapse. I don’t think their response is going to be mild or benign,” said Helima Croft, head of global commodities strategy at RBC.

Many companies that have exposure have been preparing to exit Iran dealings and are wary of violating the sanctions for fear of hurting their access to the U.S. market and financial system.

“I think it’s highly likely, if the Europeans cannot pull a rabbit out of their hat and find a way around sanctions then at a minimum, we’re talking about a nuclear restart and they resume suspended activities,” said Croft.

Cliff Kupchan, chairman of Eurasia Group said Iran will most certainly amp up its nuclear program, producing low enriched uranium and installing advanced centrifugues, activities it ended under the nuclear deal, known as the Joint Comprehensive Plan of Action .

“I think they’ll pull out of the deal in August or September. The Iranian view is the nuclear deal is a business deal, and unless the Europeans find a way to continue buying their oil and to continue European [foreign direct investment] into Iran, it’s not a good deal for them. Probably by September or by the end of the year, the JCPOA is part of the history books,” said Kupchan.

But he said Iran will want to stop short and not try to significantly quicken the breakout time for acquisition of a nuclear weapon. “If they get close to the ability to acquire a nuclear war head, they would probably lose Russia’s support. I think they will adopt a more threatening posture on the nuclear program, but it will be leavened by an unwillingness to lose Putin,” he said.

There’s no indication yet that Iran is planning to restart its nuclear program, and if it does, Kupchan said it is unlikely to go go so far as to kick out UN inspectors. “It’s self-regulating,” said Kupchan. “What would really reduce breakout time is significant deployment of advanced centrifuges and acquisition of a significant or large stockpile of low enriched uranium.”

The energy market has been focused on the resumption of sanctions in November on Iran’s oil sector, but there are financial sanctions that go into effect ahead of that on Aug. 6. Other sanctions that take effect then include sanctions on Iran’s trade in gold and precious metals, graphite, aluminum, steel and imports of aircraft parts.

“August is never calm,” said Michael Cohen, Barclays head of energy commodities research. “Summer in the Middle East, you just never know what could happen.”

Iran’s Foreign Ministry Tuesday said Iran would implement countermeasures if the U.S. attempts to block Iranian oil exports. That followed a weekend war of words between between President Donald Trump and President Hassan Rouhani, who started the back and forth by cautioning the U.S. about pursuing hostile policies against Tehran.

Oil prices are higher since the weekend but have fluctuated as worries of oversupply continue to impact the market. West Texas Intermediate crude futures were up 1.2 percent Tuesday, at $68.67 but WTI had hit a high over $69 on Monday.

“America should know that peace with Iran is the mother of all peace, and war with Iran is the mother of all wars,” Rouhani reportedly said. The Iranian president also criticized Washington, in an apparent reference to reports that Trump officials are seeking to destabilize Iran’s government. “You are not in a position to incite the Iranian nation against Iran’s security and interests,” Rouhani said.

Trump fired back Sunday with a tweet, all in caps: “NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE.” Administration officials Monday reinforced Washington’s hard line on Iran and its commitment to follow through with sanctions.

John Kilduff, partner with Again Capital, said the Aug. 6 deadline will help remind the market how serious the Trump administration is about Iran sanctions. Administration officials have said they will try to get complete compliance by November on the ban of Iranian oil sales, estimated at about 2.4 million barrels a day, and analysts say there could be as much as 1 million barrels a day removed from the market by the end of the year. That could ultimately make the sting of these sanctions greater than before the JCPOA, when 1.2 million barrels a day were removed from the market.

“The Trump administration is not fooling around. [That date] crystallizes things. They’re already moving toward it. To the extent that the workaround by Europeans and others is going to be shown to be a failure, it’s only going to be a more pointed situation for the market,” Kilduff said. He said while August could be volatile for oil prices because of Iran, high summer demand and tight supplies, crude prices could move even higher later in the year as the November oil sanctions take effect.

Analysts expect Iran to become more strident even after the August sanctions take affect, and in addition to restarting its nuclear program, it could accelerate local proxy wars, terrorist activity and even cyber attacks.

“At the very least, they’ll do some symbolic thing. The hardliners in Iran are going to be on the war path over this,” said Kilduff.

The Trump administration has taken a tough stand but has not released a lot of details about the oil sanctions, and whether any countries could be granted waivers from ending their purchases of oil. The administration has said it wants all purchases to go to zero, and it will work with individual countries.

“The administration is trying to move as quickly as possible and severely as possible. There’s not a lot of patience within this administration. They’re looking for as much bang for their buck as they can get. So far they haven’t expressed a lot of flexibility,” said Suzanne Maloney, Brookings Institution deputy director, foreign policy,

Analysts say if the administration succeeds in removing a lot of oil from the market any surprise outage could cause a price spike, even if Saudi Arabia has promised to add production. They caution that oil could also become volatile based on conflicts that are already underway in the region, where Iran could instigate activity. That includes Yemen, where Iran backs the Houthi rebels who have been firing missiles and sending drones into Saudi Arabia.

“I think [Iran] will look for ways to respond asymmetrically, blow something up, make the situation worse in Iraq…especially if they can avoid being finger printed. They will have to respond at some point. They are trying not to be baited,” said Maloney.

Maloney said despite the tough talk Iran has shown discipline since the U.S. dropped out of the nuclear deal. “There hasn’t been the kind of spasmodic reaction we’ve seen in the past…They’re being very careful, and I think they recognize this could get very difficult for them. The core priority is for the leadership to ensure the stability and the survival of the regime,” she said. “[Rouhani’s] under fire but this is a group project. He certainly was a prominent advocate but the deal was endorsed by the supreme leader.”

Croft warns to keep an eye also on Iraq, where there are protests in the southern part of the country in proximity to oil facilities.

“You can end up blundering your way into a much bigger conflict…the real risk is always unintended escalation through miscalculation,” she said.

Cohen said when Iran does test its obligations under the nuclear agreement that could drive oil prices higher and the market could also react to any other activities Iran comes up with. One of those could be to block the Strait of Hormuz, through which a third of oil trade flows, he added.

“Both the U.S. and Iran are going to use all levers at their disposal to make clear what their desires are. From Iran’s perspective, it has tools and the U.S. has its sanctions,” said Cohen.

Blocking the Strait of Hormuz or messing with the shipping lanes would be a major act for Iran. “That’s really the nuclear option in the sense of as much as it hurts all of their neighbors, and the U.S. could reopen it fairly quickly in any case,” Maloney said. “The reality is anything that drives the price higher benefits them…they have an incentive to be fairly bellicose.”

Maloney said Iran is already suffering, but analysts don’t expect Iran to rush back to the table to renegotiate with Trump any time sooner.

“It’s going to be a tough haul,” she said. “The currency collapsed even before Trump made his decision. It’s a really closed economy. Combined with the fact they’ve tried to buy off popular unhappiness by raising the minimum wage and things like that. That will have inflationary effects. They are going to be dealing with a difficult environment.”

Originally published at CNBC

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