Beauty is in the eye of the beholder. The old saying rings true not only for aesthetics, but also for whether people find an action or a statement pleasing. The events of the week remind us of that. Following through on campaign promises, President Trump decided to withdraw from the multi-national agreement with Iran put together by the last administration to address the country’s nuclear capabilities by trading promises and inspections for removal of economic sanctions. The action was simultaneously hailed as a promise fulfilled and a promise of doom depending on whose eyes were looking. Regardless, it is another bold geopolitical move in a series demonstrating Trump’s willingness to upend the status quo. Had we seen this type of political maneuver two years ago (pre-Trump), an investor might have expected heartburn and volatility at the uncertainty it represents in a delicate part of the world. Today market traders have become accustomed to Trump’s “madman” approach (commonly associated with Nixon) to global politics. On the day of the announcement, the US equity market was flat with Asian markets (opening that evening) finishing solidly positive. On the second day of US trading following the announcement, the market moved higher as investors were back to the business of earnings. Oil prices logically moved higher as renewed economic sanctions would likely cause a supply disruption from the producer.
The decision put the US at odds again with European countries that have historically been allies. European parties to the agreement include Germany, France, and Britain which, together with Iran, have communicated that they will stay in the deal. The ability for the accord to weather a US departure depends on the sanctions that are proposed by US Treasury Secretary Mnuchin. The game plan we have seen in the past may play out again where there is a loud bark but a softened bite when the final details are resolved. However, the impact that may cause the biggest long-term concern is amongst the people. Trump ended his announcement with words of solidarity with the Iranian people, but how will these actions be seen? According to an annual survey of 18-24 year olds in 16 Arab states (the Burson-Marsteller Arab Youth Survey), approximately 57% see the US as an enemy with only 35% who perceive the US as an ally. That is opposite how they felt in 2016. As time moves on and they grow into national leaders, how the Arab youth sees the world will matter to the balance of power and peace in the Middle East.