The Middle East, especially Iran, has been a major focus of recent geopolitical tensions. It’s no secret that US President Donald Trump thinks the Iran Nuclear Deal (officially known as the Joint Comprehensive Plan of Action, or JCPOA) is the ‘worst deal ever’ — reforming it was one of his key campaign promises. The JCPOA was signed off under President Obama and lifted US economic sanctions that were paralysing Iran’s economy. The deal was contingent on Iranian nuclear production staying within specific limits. Since he took office, Trump hasn’t been able to shut the deal down completely, but has been very vocal about Iran’s alleged status as the world’s biggest sponsor of terrorism.
The US President has begrudgingly acknowledged that Iran is in compliance with the JCPOA, however, this didn’t stop him from imposing non-nuclear sanctions on 18 July. This latest series of sanctions impacted close to 20 Iranian individuals and groups, including a provider of naval equipment in Turkey and a network based in China that was instrumental in securing electronics for Tehran. As a result, the price of crude oil predictably bounced up to over $47, a high that was short-lived as news of increased oil output from OPEC came through a few days later, bringing WTI Crude below $45.
Under this tightly wrought atmosphere, Iran’s president Hassan Rouhani will be officially sworn into office on 5 August. He secured victory in May with an impressive majority, and it will be interesting to see how the global markets react to his inauguration. Jameel Ahmad, VP of Market Research and Corporate Development at FXTM, states that, “When Rouhani secured victory in May, the Tehran Stock Exchange index regained some strength, recovering a 5% loss from the beginning of the year. He is known for being a reformist and having a welcoming stance towards the rest of the world, purporting big and positive economic changes for the country.” Mr. Ahmad continues to say that, “Financial market investors and currency traders alike, will be following his presidency very closely, particularly when it comes to the price of Oil and Gas. More and more foreign investors seem to be getting attracted to Iran, as a result of Rouhani’s vision.”
Rouhani’s promises of bringing Iran’s economy back to the same prosperous levels it enjoyed before the sanctions, for which increased oil production would be key, already seems to be paying dividends. French energy giant Total inked a joint deal with the China National Petroleum Corporation (CNPC) that will see the two companies invest upwards of $2 billion to aid Iran in developing the South Pars gas field. When news of the deal hit in early July, it caused no surprise, since both Europe and China are taking a much more globalist approach than Donald Trump’s isolationist stance. Rouhani has plans of sealing 10 more economy boosting deals before the end of the Iranian New Year on 20 March, 2018, according to high-ranking officials in Iran’s oil business.
It’s very likely that Rouhani’s impending inauguration will stir up some volatility in the oil markets, but investors should expect this to be short-lived and the markets should settle. The formal confirmation of his presidency will undoubtedly make international headlines and continue to influence global sentiment towards oil and Gas.
Oil prices are also vulnerable to decisions coming out of OPEC meetings, like the one of 24 July that saw extended gains after Saudi Arabia agreed to further cuts and Nigeria agreed to a cap of 1.8 million barrels a day.
The fact remains that too many outliers, such as the delicate state of the JCPOA, are in the mix when it comes to Iran. Another thorn in the side of stability is Iran’s close relationship with Qatar, which is dealing with its own litany of controversies. The two nations share the South Pars gas field, not to mention common adversaries in the US and Saudi Arabia, and as long as this relationship continues, volatility in both the Oil and even local currency markets should not be ruled out.
Even so, Rouhani’s promises of a positive future for Iran will surely inject some optimistic sentiment into forex trading. Will his inauguration stabilise the Oil markets? Unlikely, but as long as he’s making headlines, investors will be paying attention.
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