Europeans stand by Iran nuclear deal after US pullout, Peugeot stalls

Germany, France, China and Russia declared their committed to the Iran nuclear deal on Wednesday after the US decided to withdraw support overnight, while shares in companies such as Airbus and Peugeot fell on worries about whether business could be effected.

On Tuesday night, US President Donald Trump announced the US will withdraw from the 2015 agreement between the US, the UK, France, Germany, Russia, China and Iran that lifted sanctions on the Middle Eastern country in exchange for limitations on its nuclear program.

Iran’s supreme leader Ayatollah Ali Khamenei said on Wednesday that Trump’s behaviour was “silly and superficial”. And said he had made a mistake by threatening the Iranian regime and its people.

The other countries involved in the deal, which had been agreed under the US presidency of Barak Obama, vowed to stand by it. China and Russia also confirmed that they remained committed to the deal and would safeguard it and UK Prime Minister Theresa May said the accord makes the world “a safer place”.

French foreign minister Jean-Yves Le Drian said: “The deal is not dead. There’s an American withdrawal from the deal but the deal is still there.” According to Le Drian, the French President Emmanuel Macron will contact Iranian leader Hassan Rouhani who is also open to talks.

German foreign minister Heiko Maas criticised the US for withdrawing from the accord without proposing an alternative to avoid Iran from resuming their nuclear weapons production.

CONSEQUENCES FOR OIL AND EXPORTERS

Political and financial analysts said Trump's decision could deepen the conflicts in the Middle East, create tension between the US and Europe and increase uncertainty over the global oil supplies. Already oil prices have faced volatility, having fallen 3% on Tuesday but rebounded 2% on Wednesday.

The restoration of sanctions to Iran, which currently produces 4m barrels per day, is likely to affect its role as the third largest exporter of crude within OPEC.

Barclays lowered its output expectations for Iran by around 150k barrels per day in 2019, but said on a global level this volume could be offset by Saudi Arabia or by a coordinated reconfiguration of the OPEC/Non-OPEC agreement.

The bank said that in the medium term a new US sanctions regime "will surely threaten Iran’s ability to attract foreign investment", especially for the Yadavaran and Azadegan oil fields, keeping the country’s output flat or lower through 2025. “The UK, France, the EU (led by Germany), China, and Russia may also risk US sanctions for engaging with Iran. Japan also is seeking a waiver to exempt it from the requirements associated with “significantly reducing” its imports of Iranian oil.”

Naeem Aslam chief market analyst at Think Markets said: “Leading up to this event, we have witnessed panic amidst traders who pushed the price of oil higher."

"OPEC members had to work day and night to balance the supply and demand equation, and it is under threat now because other nations in OPEC could use this situation as an excuse to produce higher quantity than they should be producing. The Saudis, to take one example, want the oil price to reach $80b/pd and only a lower supply could help them to achieve that," he added.

Shares in Peugeot were down 1.2% in Paris, with Airbus down just under 1%.

On Peugeot, Morgan Stanley analysts said they "don't know whether the Iranian business will be impacted or not, but it seems plausible that the risks to the business have increased".

With around 11% of Peugeot sales coming from Iran, MS said the company is more exposed on this issue than other European OEMs. "We continue to believe that the extrapolation of current very high Peugeot EBIT margins in Peugeot valuations is overly optimistic. On any other scenario, the shares look very expensive relative to history, on peak margins."

Meanwhile, Airbus is waiting to deliver 89 aircraft to Iran Air, of which 36 are larger A330s and 16 are A350s. The company will need a US licence to sell the aircraft to Iran, because the aircraft contain more than 10% US parts.

Of the total order book of 7,189 aircraft at the end of the first quarter, the Iran Air order is only 1.4%.

"However, it is possible these aircraft represent a larger proportion of near-term deliveries," MS said. "100 aircraft would be ~4% of our forecast for Airbus deliveries over the next three years."

Analysts anticipate few issues with reallocating the 46 single aisle aircraft included in the order but reallocating the A330s and 350s "could be more challenging in the short-term".