On Monday afternoon (eastern US time) Israeli Prime Minister Benjamin Netanyahu announced that the Israeli government had covertly obtained over 100,000 files and documents from Tehran that held information about a secret Iranian nuclear missile program. He presented snippets of this information to the public in an attempt to prove that Iran had violated the JCPOA when it withheld information about its nuclear weapons programs.
As he spoke, the price of oil rose. WTI reached a new high of $69.12 per barrel about ten minutes into Netanyahu’s speech. An hour after the speech concluded, WTI was back down to $68.45 per barrel. This was a clear reaction from the oil market in response to Netanyahu’s speech and the information he revealed.
Oil prices have been rising in recent weeks, in part due to anticipation of President Trump’s May 12 decision on whether to reinstate sanctions on Iran. Some analysts claim that the oil market has already taken into account the potential reinstatement of sanctions and that prices will not continue to go up if Trump decides to reinstate sanctions on May 12. They believe a decision against Iran is already priced into the market.
However, Netanyahu’s speech and the sudden spike in oil prices it caused indicate that oil markets have not yet fully priced in the impact of a decision against Iran. The potential resumption of sanctions against Iran could remove up to 1 million barrels of oil per day from the market and could increase geopolitical tensions in the Middle East. Such a decision could also cause a rift between the US and the EU. The spike in oil prices that corresponded with Netanyahu’s speech (and the following drop following the news) revealed that there is clearly more room for oil prices to rise depending on Trump’s decision.
Analysts seem divided on what message Netanyahu’s speech sent. It could indicate that the Trump administration is likely to reinstate the sanctions (effectively cancelling the JCPOA) and that Netanyahu’s revelation was calculated to provide support for that. On the other hand, it could indicate that the Trump administration is planning to continue the sanctions wavers that would leave the JCPOA in place; perhaps Netanyahu’s presentation was designed to pressure the Trump administration to change its stance.
The one fact that may mute the reaction in oil markets to Trump’s decision is timing. The President must wave the sanctions by May 12, which is a Saturday. If the President announces his decision on May 12 in the US, we will not be able to see a reaction from the oil market until futures markets open on Sunday night (in the eastern US). A knee-jerk reaction, such as the one we saw during Netanyahu’s Monday afternoon presentation, will be impossible. By the time Sunday night comes, traders will have had time to process the decision and will not be reacting immediately to the news. Of course, President Trump could decide to announce his decision earlier than May 12, and if he announces it the day before, on Friday, before trading closes, the oil market could be in for a rocky ride.