The resignation/firing of John Bolton, a long-time advocate of military action against Iran, as National Security Advisor to President Donald Trump, has send oil prices tumbling today. U.S. benchmark West Texas Intermediate is down 2.42% to $56.01 a barrel. International benchmark Brent crude is off 2.20% to $61.01 a barrel.
The theory behind the price drop is that Bolton’s departure lessens the odds that the United States will bomb Iran tomorrow and increases the odds that President Trump will restart talks with Iran over ending U.S. sanctions and limits on Iran’s efforts to build a nuclear weapon. That theory has gained creditability today from accounts that Bolton’s departure followed on the heels of a White House meeting where Trump discussed easing sanctions on Iran in order to secure a meeting with Iranian President Hassan Rouhani later this month and where Bolton strenuously argued against that move.
I’d expect that the downward trend in oil prices will continue for a while as talk swirls about the possibility that Trump will meet with Rouhani in New York on the sidelines of the annual United Nations General Assembly meeting on September 23. Trump has said he’s open to considering easing sanctions to make the meeting happen. The Iranians have indicated that they won’t meet unless the United States makes some concessions on sanctions.
Any concessions on sanctions before any such meeting or as a result of such a meeting would result in more Iranian oil moving back into international oil markets. Hence the drop in oil prices today.
I think this sets up another dynamic similar to that now at work in the U.S.-China trade war where the market jumps and slumps on the slightest bit of “news.” Any positive rumor will push oil prices down. Any rumor of an obstacle to a meeting will send oil prices up.
The odds favor, in my opinion, a No Meeting result. The Trump administration and Secretary of State Mike Pompeo have worked hard to sell the world on a campaign of maximum pressure as the only way to make Iran change its behavior. Easing sanctions before any change in behavior might be a step too far for the White House.
Expect more volatility in oil prices as we get close to September 23.
