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Tillerson's departure imperils Iran deal, shifts path on Venezuela oil sanctions: analysts

Washington (Platts)--13 Mar 2018 109 pm EDT/1709 GMT


President Donald Trump said Tuesday that he had removed Rex Tillerson as secretary of state, a move likely to end US involvement in the Iran nuclear deal and alter the administration's plans for sanctions on Venezuela's oil sector, analysts said.


  • Trump picks Iran deal critic ahead of May deadline
  • Analysts predict reimposition of Iran oil sanctions
  • Tillerson departure muddles path forward on Venezuela

Trump named CIA Director Mike Pompeo, a former Republican congressman from Kansas and a harsh critic of the Iran deal, as Tillerson's replacement.

"We disagreed on things," Trump told reporters Tuesday morning. "When you look at the Iran deal, I think it was terrible, I guess [Tillerson] thinks it was OK."

May 12 is the next deadline for the US to waive oil-related sanctions on Tehran as part of the Joint Comprehensive Plan of Action. Trump has said he would refuse to authorize that waiver again if the US Congress and European partners do not "fix" terms of the nuclear agreement.

The US would be seen as violating the JCPOA if Trump does not continue to waive the sanctions.

Joe McMonigle, an analyst with Hedgeye Capital, said Tillerson's departure was an "ominous sign" that Trump plans to reimpose oil sanctions on Iran in May.

"I think we can now safely say that the end is near for the Iran deal," said McMonigle.

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Elizabeth Rosenberg, a senior fellow and director of the energy, economics and security program at the Center for a New American Security, said that Pompeo has been a harsh critic of the Iran deal and has publicly discussed military options for Iran.

Pompeo's appointment "isn't an immediate death sentence for the Iran deal -- but it bodes very poorly," Rosenberg said. "Tillerson supported keeping the deal in place, and has headed the agency conducting negotiations with [Germany, France and Italy] over Iran policy that could satisfy what the president views as flaws with the deal and keep it in place."

Tillerson's departure from the Trump administration "puts the nail in the coffin of US participation in the JCPOA and could also be the catalyst for additional sanctions on Venezuela," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "Both are likely pretty bullish for oil prices and puts the geopolitical risk premium back in the market."

The Senate Foreign Relations Committee expects to hold a hearing on Pompeo's nomination in April, Chairman Bob Corker said in a statement.

The committee confirmed Pompeo to serve as CIA director on a vote of 66-32 in January 2017.

Tillerson was confirmed by the full Senate in February 2017, less than two weeks after being formally nominated by Trump.


VENEZUELA


Tillerson, the former CEO of ExxonMobil, had become a leading advocate for sanctions on Venezuelan exports in recent weeks, analysts said.

The administration was looking at how to "mitigate the impact [of sanctions] on US business interests, but also there are other regional countries that it would affect as well, and we want to be mindful that...we do not want to harm them with an action we take either," Tillerson said during a press conference in Buenos Aires last month.

Risa Grais-Targow, director, Latin America, at the Eurasia Group, said Tuesday that Tillerson's departure, however, may mean little for the administration's path forward on Venezuela sanctions.

"My sense is that Venezuela policy is being driven by the White House, with Tillerson and State Department playing a more tangential role," said Grais-Targow. "In that sense, I don't think it will change much in terms of overall policy stance towards Maduro's government."

Still, McMonigle said that with Tillerson's departure and last week's departure of White House National Economic Council Director Gary Cohn, who did not support oil-sector sanctions on Venezuela due to the impact on the US refining sector, Trump "seems to have shifted on getting tougher on Venezuela in the coming weeks."

In an interview with the Platts Capitol Crude podcast last month, George David Banks, a former top energy adviser to Trump, said the administration has been weighing the impact of any potential sanctions on Venezuela's oil sector with the impact they may have on US Gulf refiners.

"I think there are a number of reasons why the US has to think carefully through any kind of approach to Venezuela that would impact the flow of oil and petroleum products back and forth," said Banks, who stepped down as White House Special Assistant at the National Economic Council and National Security Council on February 13. "How much of a negative impact are you actually going to have on Venezuela and how much of a negative impact are you going to have on the [US] Gulf Coast?"

Amy Myers Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations, said Tillerson was poised to have more significant influence on any Venezuela policy than he could have had on Iran.

"There's a lot of voices on Iran," she said, pointing to the Pentagon, national security advisers and Congress. But "the State Department was handling Venezuela."

Jaffe said his departure likely complicates the US strategy, leaving the White House to answer key questions like whether any US refiners would need to borrow heavy crude from the Strategic Petroleum Reserve in the event of sanctions.

Last month, Tillerson toured Latin America and rallied leaders on pressing for democratic reforms in Venezuela.

"It's not that we start from scratch, but you lose a certain amount of momentum when you have to go back to those same leaders with a different team," she said.


RUSSIA


Tillerson's removal came one day after he called the poisoning of a former Russian spy in Britain "an egregious act," which "clearly came from Russia."

"I've become extremely concerned about Russia," Tillerson said in an interview with reporters Monday.

CFR's Jaffe called it a "tragedy" that Tillerson will not be representing the US on Russian issues. She said that, as ExxonMobil CEO, Tillerson was the most effective corporate leader in the energy sector dealing with Moscow.

She said Tillerson learned first-hand that operating from a position of strength produced faster results with Russia than being accommodating or searching for natural alignment.

When ExxonMobil's talks with Russian state-owned Rosneft seemed to be going nowhere, Jaffe said, ExxonMobil mounted an assertive campaign to challenge Rosneft in key natural gas markets such as Eastern Europe, Germany and China by offering its customers competitively priced supply.

Jaffe said the tenor of the talks improved after that and led to an expanded strategic agreement in 2013.

"This is the one guy in the country who ever beat Putin at anything," she said. "This was the one guy that could handle the Russians."

--Brian Scheid, brian.scheid@spglobal.com
--Meghan Gordon, meghan.gordon@spglobal.com




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