Brace for Impact in the Energy Sector as Trump Prepares to Make Decision on Iran Deal Today

Stocks like Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) could receive a boost, as Trump prepares an earlier-than-expected announcement on the Iran deal.

The Motley Fool

WTI crude oil rose above $70 on May 7 on the same day that U.S. president Donald Trump tweeted that he would announce his decision on whether to re-impose sanctions on Iran at 2:00 pm today. Oil prices have rallied in recent weeks on the back of increasing tensions in the Middle East and the rising probability that Trump will elect to scrap the deal.

President Trump appointed John Bolton, a notorious hawk, to national security advisor in April. In 2017, Bolton, speaking to the People’s Mojahedin Organization of Iran, concluded his address stating, “And that’s why, before 2019, we here will celebrate in Tehran!” The People’s Mojahedin Organization of Iran is an Iranian political organization in exile that advocates for the overthrow of the ruling Iranian government.

Trump also appointed Mike Pompeo to secretary of state after the dismissal of former Exxon Mobil chief Rex Tillerson. Pompeo has also been highly critical of the Iranian nuclear deal. In a press conference in Saudi Arabia on April 29, Pompeo did not waver from this position, saying that the deal failed to provide a framework that would prevent Iran from developing a nuclear weapon down the line.

The consensus among traders and geopolitical experts appears to be that Trump will seek to re-impose sanctions, which could put the deal at serious risk. However, Iran has stated that it is willing to comply with the framework of the deal so long as the other signatories are willing to move forward. Major U.S. allies, including the United Kingdom, France, and Germany, have all urged Trump to remain part of the deal.

Investors should not count on a significant spike if sanctions are re-imposed. The outcome has likely already been priced in over the past few weeks, which will put a cap on gains after the announcement today. The slashing of Iran’s large export volume may generate upward pressure on oil prices, but it could also drive Iran to refuse to abide by OPEC production cuts. More than anything, tensions in the Middle East will increase dramatically among the chief geopolitical competitors if the deal is scrapped.

The Canadian energy sector has received a boost due to the rise of oil and gas prices in recent weeks. Baytex Energy Corp. (TSX: BTE)(NYSE: BTE) rose 1.98% on May 7, and shares are up 50% in 2018 so far. The stock is up nearly 70% over a three-month span. Even Kinder Morgan Ltd. (TSX:KML), which is in the midst of a dramatic battle over the future of the Trans Mountain expansion project, has seen its stock rise 3.2% week over week.

U.S. law would empower the Treasury Department to sanction international financial firms that transact with Iran. Obama-era sanctions asked allies to reduce imports of Iranian oil by 20% every 180 days to apply maximum pressure. Investors should be prepared to watch the transition period closely as the administration determines how it will proceed.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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