Whether President Trump will pull out of or continue the Iran Nuclear deal has been speculated on for quite some time, and the decision is due to come down today. There are of course beliefs on both sides of the political spectrum on how to approach this deal and what should be done about it, but this will not be an article about the merits of staying in vs leaving the deal. This blog post will focus on what some of the ramifications will be of pulling out of the deal and how that affects the everyday consumer.
Effect on Tax Cuts
Economic analysts have noted that a rise in oil prices by $1 would be enough to counteract the benefits that most people will receive from the tax cuts that were recently passed. Deutsche Bank predicts that even a much smaller rise in oil prices as a direct result of pulling out of the Iran Deal and imposing sanctions would be enough to negate the discretionary income provided by the tax cuts for the lower class.
That being said, the $1 threshold seems to be quite a reach and is relatively unlikely, but Morgan Stanley notes that sustained prices at current levels would wipe out a third of the take home pay benefit bestowed by the tax cuts. Given that most reports have Trump pulling out of the Iran Deal, there is likely to be more pressure on gas prices meaning that it’s unlikely they stay at the same pricing levels. This means that for those who aren’t part of the very upper classes, the tax cuts you will receive will be greatly undercut by the US pulling out of the Iran Deal.
Up until now, the pricing of oil hadn’t been dictated by geopolitical risk, but that could all change with the US pulling out of the Iran Deal. By re-imposing sanctions and if the US decides to take a tough stance on Iran, oil and gas prices could have a larger reaction fueled by increased geopolitical risk. Because of the increase in geopolitical risk there will be more inventory risk in other oil producing countries, which could create a large amount of volatility in the market. Beyond the effect on oil prices, pulling out of the Iran Deal will give way to more escalation of tensions within the Middle East.
Regardless of political rhetoric, there is a lot to be considered in whether pulling out of the Iran Deal makes sense for the US. I’m curious to know what your thoughts are regarding the Iran Deal, so let me know in the comments or send me an email.