The state of play regarding President Trump’s decision to terminate the JCPOA (Joint Comprehensive Plan of Action) with Iran and to reimpose sanctions is in a state of flux.

Here’s a quick overview: The JCPOA was the 2015 deal among the U.S., U.K., France, China, Russia, Germany and Iran to limit Iran’s nuclear weapons program in exchange for relief from economic sanctions and in the expectation that Iran would modify its behavior and gradually normalize its diplomatic and commercial relations with the West. The U.S. and our allies did terminate the sanctions and delivered over $100 billion in cash and gold to Iran as a kind of bribe to be on their best behavior.

But instead of normalizing relations, Iran spent the money supporting terrorist groups in Lebanon, Syria, Gaza and Yemen, and attacked U.S. allies Israel and Saudi Arabia. Iran also continued its weapons development program by launching ballistic missiles.

Now Trump has ended U.S. participation in JCPOA and reimposed sanctions. The question is whether Europe will join Trump or will try to maintain “business as usual” with Iran. For the time being, Iran is trying to keep the deal alive with Europe and Europe is hoping to do the same.

One of the steps the parties are pursuing is to price Iranian oil in euros instead of dollars, as this article reports. At the same time, China is supporting Iran, and it may just be a matter of time before China tries to pay for its oil in yuan instead of dollars, also to avoid U.S. sanctions.

Dollar-based sanctions are a powerful financial weapon for the U.S. But our adversaries and so-called allies are not standing still. They are already envisioning a world where the dollar is not the major reserve and trade currency.

The 1974 “petrodollar” deal is coming undone. The implications of that are highly inflationary since less demand for dollars means dollar devaluation. This won’t happen overnight, but the first steps have already been taken and more are planned.

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