Update: Trump's Iran MoU 'Over' Remarks Not Necessarily End of Talks, Analysts Say
(Updates with comments from Mamdouh G. Salameh in paragraphs 7-16)US President Donald Trump's remarks on Wednesday that the interim memorandum of understanding with Iran was "over" do not necessarily signal the end of negotiations between the two countries, and little should be read into them until more clarity emerges, energy sector analysts told.Speaking ahead of a NATO summit in Turkey, the US president stated that the Pakistan-mediated ceasefire accord is over and called it "a waste of time."This follows an escalation of military actions in the Middle East.On Tuesday, the US Central Command launched a massive wave of retaliatory airstrikes across Iran after three commercial oil tankers were targeted and struck by projectiles in the Strait of Hormuz.Simultaneously, the economic components of the peace accord have been swiftly dismantled.Meanwhile, Iran's Islamic Revolution Guards Corps reportedly struck US military facilities in Bahrain and Kuwait with drones and missiles in retaliation.International oil economist and global energy expert Mamdouh G. Salameh said Trump's remarks carry significant implications for oil markets despite the president's history of reversing policy positions.Salameh toldvia email that despite Trump's comments that the US-Iran MoU is "over" and that he did not want to engage with Tehran is "highly significant.""The impact on oil prices was virtually immediate. Brent crude oil price has already risen today to $77.30 a barrel," he said, noting that the markets were "fooled" by the quick decline in prices."This, in my opinion, was the calm before the storm and the storm will start soon once major oil consumers like China, the US, the EU and India start refilling their virtually depleted strategic and inventory reserves," Salameh said.Salameh added that he expects Brent crude to surge to $85 per barrel to $90/bbl and will remain so for years to come.Salameh said Brent prices will likely carry a permanent Strait of Hormuz risk premium of $15/bbl to $20/bbl because Iran maintains firm control over the waterway and could close it periodically if its national interests come under threat.He also rejected the International Energy Agency's outlook for an oil glut, saying markets could instead face supply shortages this summer and in 2027."The markets are more likely to price Trump's statement as a longer-term supply concern," Salameh said.Another closure of the Strait of Hormuz would slow the rebuilding of global oil inventories, tighten supply balances and put additional upward pressure on crude prices, Salameh said."In my opinion, every time the Strait is closed even for a short period makes energy flows very vulnerable to rising prices and supply shortages," Salameh said.Meanwhile, some analysts have said it was too soon to interpret Trump's comments. "I would personally caution against reading too much into the comments just yet," said Nader Itayim, Mideast Gulf Editor at Argus Media."Yes, this is some of the strongest language that we've heard from Trump, and yes, the comments followed the most intense exchange of fire since the MoU was signed. But as of now, the Iranians are not reciprocating this idea of the MOU being over, and Trump still has left the door open to negotiations."Despite the fragility of the situation and the risk of a collapse in discussions, both sides are still trying to "negotiate through power" at this point, Itayim said.Echoing that, Neil Crosby, Head of Research at Sparta Commodities, toldthat more clarity was needed on what Trump's statement means for the MoU and the conflict."Prices are likely to fade if we don't get much more information this week. The whole flow out of Hormuz is at risk so more recently we are talking some 10 [million barrels per day]. And of course, many escalation scenarios ahead. But also de-escalation is still possible, perhaps this is just a new negotiation tactic," he said.Trump's statement is likely to, however, force the market to reassess the situation and reintroduce some of the risk premium that had been previously underpriced amid expectations of an improvement in the conditions and flow of traffic through the Strait of Hormuz, Argus' Itayim said.The exchange of strikes between the US and Iran has left flows through the Hormuz vulnerable and the recent escalation is likely to further discourage shippers from deploying vessels to the region, Itayim said."Flows (through Hormuz) are definitely vulnerable. They have been for several weeks now, even after the MoU was signed.... But the sporadic attacks, and the regular back-and-forth between Iran and the US over who controls the strait has left little chance for things to return to normal," he said."The attacks will have put the shipping industry on alert, and it could further deter shipping companies from sending vessels to the region."