President Trump has decided to pull out of the Iran nuclear deal.
The accord, which waived economic sanctions on Iran in exchange for a halt to its nuclear weapons program, was originally put into place by the Obama administration in 2015.
Under the deal, Iran agreed to concessions, most notably reducing its uranium stockpile, and allowing inspectors from the International Atomic Energy Agency to monitor its declared nuclear sites.
Trump, however, has decided to reverse course and withdraw the U.S. from the agreement, while also reinstating sanctions on Iran.
What’s a sanction?
A sanction is a type of penalty, typically levied by one nation or group of nations on another in an effort to deter or punish certain behavior.
In this case, Iran was sanctioned by the U.S. for attempting to build a nuclear weapon. Those economic sanctions–which are commercial or financial in nature–were meant to put pressure on the Iranian government by hurting the country’s economy through blocked trade and transactions.
In pulling out of the nuclear pact, Trump announced that the U.S. will reinstate sanctions previously lifted under the deal.
American allies, including leaders from France, the U.K., and Germany, unsuccessfully tried to pressure Trump into recertifying the deal.
Why is Trump pulling out of the deal?
There isn’t a clear answer, though Trump has said that he wants an agreement that sticks tougher restraints on Iran, including limits on its nuclear fuel production. He also opposes the current deal’s sunset provision, which allows Iran to resume its nuclear program after 2030.
Trump has called the accord, in its current form, the “worst deal” and “an embarrassment.”
Trump has also claimed that Iran was cheating or not sticking to the terms of the deal; A claim to which he has provided no evidence, and that his own intelligence agencies have refuted.
The immediate fallout
The immediate effects of Trump’s decision are that American allies–notably countries in the European Union–will be alienated, and strain already tense relationships.
“France, Germany, and the UK regret the U.S. decision to leave the JCPOA,” French President Emmanuel Macron tweeted following Trump’s announcement. “The nuclear non-proliferation regime is at stake.”
Iran, taking America’s cue, could also decide to violate the terms of the deal and ramp up nuclear activities.
Iranian leaders have, however, said they’re willing to continue working within the accord’s framework with its co-signers for the time being.
Business and the economy
There are also many business dealings–between both American and European companies–in the works involving Iran. Boeing, for example, could lose $20 billion in aircraft sales to Iran as a result of Trump’s decision. General Electric, also, had deals in place to supply Iran’s oil and gas sector with equipment, which could now be threatened.
Another company, Volkswagen, returned to Iran after 17 years once the nuclear deal was signed and sanctions were lifted. Now that the deal is off, it may need to once again pull out of the country.
French aerospace company Airbus, like Boeing, may also need to scuttle its plans to sell planes in IranAir, Iran’s national carrier.
As the reinstatement of sanctions all but puts a stop to those deals and more, it could also create stock market volatility and have other economic effects.
Trump’s decision also increases the possibility of military action in the future–assuming Iran resumes work toward building a nuclear weapon.
What you should prepare for
For the average American, the single biggest–or at least most noticeable–consequence of Trump’s decision is likely to be rising fuel prices.
The terms of the nuclear deal allowed Iran to export oil to other countries. But with sanctions reinstated, it will no longer be able to export, and as a result, the global oil supply will get smaller. Lower supply can lead to higher gas and home heating prices.
Aside from costlier commodities, your portfolio could also be in for a wild ride as the markets react.
For example, the markets dropped considerably after Trump announced tariffs on Chinese goods, stoking fears of a trade war. The markets could act similarly regarding Iran.
There’s also a strong possibility that defense and aerospace stocks could rise or drop if the U.S. considers military action. The same could be true for domestic oil companies if world oil supplies shrink.