Iran says it will quit global nuclear treaty if case goes to U.N.

By Babak Dehghanpisheh

DUBAI (Reuters) – Iran said on Monday it could quit the global nuclear Non-Proliferation Treaty (NPT) if European countries refer it to the U.N. Security Council over a nuclear agreement, a move that would overturn diplomacy in its confrontation with the West.

The 1968 NPT has been the foundation of global nuclear arms control since the Cold War, including a 2015 deal Iran signed with world powers that offered it access to global trade in return for accepting curbs to its atomic program.

The fate of the 2015 pact has been in doubt since U.S. President Donald Trump pulled the United States out of it and reimposed sanctions. Iran has responded by scaling back its commitments, although it says it wants the pact to survive.

Britain, France and Germany declared Iran in violation of the 2015 pact last week and have launched a dispute mechanism that could eventually see the matter referred back to the Security Council and the reimposition of U.N. sanctions.

“If the Europeans continue their improper behavior or send Iran’s file to the Security Council, we will withdraw from the NPT,” Iranian Foreign Minister Javad Zarif said, according to comments carried by IRNA and other Iranian news agencies.

He also said Iran could take other steps before withdrawing from the NPT, although he did not specify them.

The nuclear dispute has been at the heart of an escalation between Washington and Tehran which blew up into military confrontation in recent weeks.

The 190-member NPT bans signatories other than the United States, Russia, China, Britain and France from acquiring nuclear weapons, in return for allowing them to pursue peaceful nuclear programs for power generation, overseen by the United Nations.

The only country ever to declare its withdrawal from the NPT was North Korea, which expelled nuclear inspectors and openly tested atomic weapons. Nuclear-armed India and Pakistan never signed up, nor did Israel, which does not say whether it has nuclear weapons but is widely presumed to have them.

The West has long accused Iran of seeking to develop nuclear arms. Tehran denies this and says its goal is to master the whole process of generating electricity from nuclear energy.

A steady escalation over Iran’s nuclear plans flared into tit-for-tat military action this month, with Trump ordering a drone strike that killed a top Iranian general, prompting Iran to fire missiles at U.S. targets in Iraq. During a state of alert, Iran shot down a Ukrainian airliner in error.

Amid that escalation – one of the biggest since Iran’s 1979 revolution – Tehran has faced mounting pressure from European states which say they want to save the 2015 nuclear deal. They have also indicated a readiness to back Trump’s call for a broader deal with Iran that goes beyond its nuclear plans.

‘MAXIMUM PRESSURE’

“Despite the ill will that we see from some European countries the door of negotiations with them has not been closed and the ball is in the court of these countries,” Iranian Foreign Ministry spokesman Abbas Mousavi said.

But he also told a news conference: “I don’t think Iran is ready to negotiate under the conditions they have in mind.”

Since Washington withdrew from the deal, Trump began a policy of “maximum pressure”, saying a broader deal should be negotiated on nuclear issues, Iran’s missile program and Iranian activities in the Middle East.

U.S. sanctions have crippled Iran’s economy, slashing its oil exports. Iran has long said it would not negotiate with Washington while sanctions are in place.

Tehran has repeatedly held talks with European officials to find ways to keep the nuclear agreement alive, but has blamed the Europeans for failing to guarantee economic benefits that Iran was meant to receive in return for curbing nuclear work.

“The European powers’ claims about Iran violating the deal are unfounded,” Mousavi said. “Whether Iran will further decrease its nuclear commitments will depend on other parties and whether Iran’s interests are secured under the deal.”

In a report on a parliamentary website, Iran’s foreign minister said steps to scale back its commitments under the nuclear deal were now over.

Britain has said a “Trump deal” could replace the 2015 deal, and France has called for broad talks to end the crisis.

Iran says it cannot negotiate with Trump, who broke promises by repudiating the deal reached under his predecessor Barack Obama. Mousavi repeated Iran’s rejection of a “Trump deal”.

“The fact that a person’s name is put on an agreement shows they’re not familiar with the conditions. An agreement with a person doesn’t mean anything,” he said.

(Reporting by Parisa Hafezi and Babak Dehghanpisheh; Writing by Edmund Blair; Editing by Peter Graff)

Nervy global investors revisit 1930s playbook

Unemployed man during the Great Depression

By Mike Dolan

LONDON (Reuters) – Global investors are once again dusting off studies of the 1930s as fears of protectionism, nationalism and a retreat of globalization, sharpened by this week’s Brexit referendum, escalate anew.

With markets on tenterhooks over Thursday’s “too close to call” vote on Britain’s future in the European Union, the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left-field political shocks.

As such, the Brexit vote will not be an open-and-shut case regardless of the outcome. Broader worries about global trade, frail growth and dwindling investment returns have festered since the banking shock of 2007/08 and have mounted this year.

Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade, with growth now hovering just above the 2.0-2.5 percent level most economists say is needed to keep per capita world output stable.

Three-month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months, according to the Dutch government statistics body widely cited as the arbiter of global trade data.

And it’s not a seasonal blip. Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3 percent over the intervening seven years was itself half that of the 25 years before, according to Swiss asset manager Pictet. 2016 is set to be the fifth sub-par year in row.

A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4.2 percent average for the past 200 years.

Foreign direct investment growth of 2 percent of world output is also at its lowest since the 1990s, while the hangover from the credit crunch has seen annual growth rates in cross-border bank lending grind to a halt from some 10 pct in the decade to 2008.

Parsing the big investment themes of the next five years, Pictet this month highlighted “globalization at a crossroads” – offering both benign and malignant reasoning and implications.

One of these was that trade deceleration was due in part to the inwards reorientation of the world’s two mega economies, the United States and China — the former due to the shale energy boom and the latter’s planned shift to consumption from exports.

Another factor cited was a shift in the world economy towards services and digital activity that is not captured by statistics on merchandise trade.

But Pictet had little doubt about what brewing developments could swamp all that — rising nationalism on the far right and left of the political spectrum in Europe and the United States.

Britain “threatens to drive a fault line” through one of the world’s biggest free trade blocs, it said, and both presumptive candidates for November’s U.S. presidential election have talked of renegotiating the still-unratified Trans Pacific Partnership binding economies making up 40 percent of world trade.

“If the rising tide of nationalism results in greater protectionism, then the decline in international trade the world has experienced so far could well morph into something more pernicious,” the Swiss firm said, adding that multinationals — particularly banks and tech companies — were most vulnerable.

“1937-38 REDUX?”

Against that backdrop, this year’s market wobbles make total sense — especially as near-zero interest rates limit central banks’ ability to insulate against further shocks.

But echoes of the last major hiatus in trade globalization during and between the World Wars has economists looking again to the 1930s for lessons and policy prescriptions.

In a paper entitled “1937-38 redux?”, Morgan Stanley economists detail the mistakes that saw monetary and fiscal policy tightened too quickly once a recovery from the 1929 stock market crash and subsequent Depression started in 1936.

Over-eagerness to reset policy before private sector confidence in future growth and inflation had picked up saw a relapse into recession and deflation by 1938. The devastation of World War Two followed, and with it huge government spending on military capacity, war relief and eventually reconstruction.

Morgan Stanley goes on to draw a parallel with the global response to 2008’s crash and subsequent world recession.

Waves of monetary and fiscal easing by 2009 underpinned economic activity, but government budgets have again tightened quickly and before inflation expectations or private investment spending and capital expenditure have been restored.

The second world recession in a decade is now seen as a threat, but with a heavier starting debt burden, historically low inflation and interest rates, stalled trade and a worsening demographic profile. That could mean another global government spending stimulus is needed to re-energize private firms.

“The effective solution to prevent relapse into recession would be to reactivate policy stimulus,” Morgan Stanley said.

Success in preventing a new recession without the cataclysm of a world war would be a profound lesson learned. Political extremism, isolation and protectionism make the task far harder.

(Editing by Catherine Evans)

U.S. goods trade deficit narrows sharply in boost to first-quarter GDP

Freight and Cargo

WASHINGTON (Reuters) – The U.S. goods trade deficit narrowed sharply in March as imports tumbled, suggesting economic growth in the first-quarter was probably not as weak as currently anticipated.

The Commerce Department said in its advance report on Wednesday that the goods trade gap fell to $56.90 billion last month from $63.44 billion in February.

March’s comprehensive trade report, which includes services, will be released next Wednesday.

Goods imports fell 4.4 percent to $173.6 million last month, outpacing a 1.2 percent drop in exports.

The small goods deficit suggested there could be an upside surprise in gross domestic product growth for the first quarter. Economists polled by Reuters have forecast GDP rising at a 0.7 percent annualized rate in the first three months of the year.

“It suggests that first-quarter GDP growth will be much stronger than we previously believed,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

“We now estimate that first-quarter GDP growth was 1.4 percent annualized, whereas we previously thought it would be only 0.8 percent.”

The government is scheduled to publish its advance first-quarter GDP growth estimate on Thursday.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Oil prices fall as investors faith in rally wanes

By Amanda Cooper

LONDON (Reuters) – Oil prices fell on Tuesday, reflecting growing concerns that a two-month rally may be in danger of fizzling, while analysts forecast another rise to record levels for U.S. crude stockpiles.

The oil price has risen by more than 45 percent since mid-February ahead of a meeting next month of the world’s major producers to discuss an output freeze to support prices. But there is growing scepticism about the outcome of the meeting.

“The amount of verbal intervention, which has obviously helped the market greatly over the past two months, combined with a production slowdown in the U.S., has probably taken (oil) as far as it can, now the market really wants to see some action,” Saxo Bank senior manager Ole Hansen.

“We’re seeing more and more commentators raise the flag and saying ‘have we seen too much, too soon?’ in terms of the rally across the sector.”

Brent crude futures <LCOc1> fell by $0.96 to $39.31 a barrel by 1124 GMT (7.24 a.m. ET), having lost some six percent in the last six trading days, while U.S. crude <CLc1> fell 78 cents to $38.60.

OPEC and other major suppliers, including Russia, are to meet on April 17 in Doha to discuss an output freeze aimed at bolstering prices.

But with ballooning global inventories, signs some OPEC members are losing market share, plus little evidence of a strong pick-up in demand, analysts said oil is likely to trade in a range.

“There is a rebalancing on the way, but we are still running a surplus and stocks are building up as far as we can see,” SEB commodities analyst Bjarne Schieldrop said.

“There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning.”

Data on Monday from the InterContinental Exchange showed speculators hold the largest net long position in Brent futures on record. [O/ICE]

U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh straight week, while refined product inventories likely fell, a preliminary Reuters survey showed late on Monday. <API>

Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed.

(Additional reporting by Aaron Sheldrick in TOKYO; Editing by Jane Merriman and Susan Thomas)