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Here's my general policy: When you are wrong, it's best to admit it or someone will admit it for you, in a worse way.

I was wrong about how far Trump would carry his foolish policy on Iran.

Hedgeye energy analyst Joe McMonigle got it correct as this Energy Flashback shows.

Choking Point

Yesterday, Trump tightened the noose on Iran. How tight?

Consider this International Law Advisory on Iranian Sanctions.

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Trump Administration officials have explained that primary and secondary sanctions will be reimposed after 90- or 180-day “wind-down” periods, depending on the business activity, and that failure to halt sanctioned activity by the end of the wind-down period would risk “severe consequences.”

President Trump’s NSPM indicates that “all” of the sanctions waived or lifted under the JCPOA will be reimposed. These changes most likely will be implemented through new Executive Orders (EOs) from the president; termination of the periodic statutory sanctions waivers that have been issued by the Secretary of State; and changes to licenses, licensing policy, and the SDN list that will be made by OFAC. While there are numerous questions still outstanding about how the new sanctions may be implemented on a practical level, it is clear that the greatest impact of the reimposition of the sanctions will be on non-US entities, including non-US entities owned or controlled by US persons.

Sanctions Subject to 90-Day Wind-Down

  • The purchase or acquisition of US dollar banknotes by the Government of Iran
  • Iran’s trade in gold or precious metals
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial
  • The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt
  • Iran’s automotive sector

Sanctions Subject to 180-Day Wind-down Period

  • Iran’s port operators, and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates
  • Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under section 1245 of the National Defense Authorization Act for Fiscal Year 2012, as amended (NDAA)
  • The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA)
  • The provision of underwriting services, insurance, or reinsurance
  • Iran’s energy sector

Economic War on Iran

That article was written on June 6, before yesterday's bombshell that I described as Economic War on Iran: Trump Sets Sanction Policy for Entire World.

Theoretically, Iran Can Use Bitcoin to Avoid US Sanctions.

That is still correct but it requires a major willing participant such as India. And India previously did state it would not honor the sanctions.

Did that change yesterday?

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A friend whose opinion I value offered this comment:

Yesterday afternoon, the Trump Administration noted that this was a big “national security” priority and no waivers were going to be granted.

Thus, if India continues to import Iranian oil, it will also be sanctioned. The US is now compelling other countries to follow its policy or face serious economic consequences. Because the US is such an enormous part of the world economy, it has tremendous potential power. But it has never actually wielded its power in this way. Honestly, I think that governments have little choice but to comply. India is already beginning steps to comply. Iran is just not worth it.

And it is now that people understand this scheme, it is affecting oil prices. The Iranian oil really is going to stop being available.

First Time

I incorrectly counted on this: The "US has never actually wielded its power in this way."

Oil Shock

I do not believe Saudi Arabia can step up production enough to counteract a complete shutdown of Iranian oil. Even it it can, OPEC might agree to do so, then not do it.

Venezuelan oil is already kaput. Now Iran.

Don't be fooled by US oil exports.

The US does export oil, but it still imports more than it exports. If oil prices keep rising, the US cannot avoid another oil shock.

The shock will impact the EU, Japan, China, and India even more than the US.

Very Recessionary

This is very recessionary. It is one thing to have oil prices rise due to demand, it is another thing to have oil prices soar because of idiotic actions imposed on the world.

A recession within a year is not out of the question. Indeed, Rosenberg's Recession Call, which has been soundly ridiculed in many places, looks pretty good if these oil sanctions stick.

For discussion, please see Rosenberg's Call: Recession, Rising Inflation, Cooling Commodities, S&P 500 Top.

Mike "Mish" Shedlock