Rouhani’s Inauguration: Will it Impact the global markets?
Geopolitical tensions are heavily centred around the Middle Eastern region, particularly Iran. Donald Trump’s successful Presidential campaign was built in part on his denouncement of the Joint Comprehensive Plan of Action (JCPOA). Otherwise known as the Iran nuclear deal, it was finalised in July 2015 under the Obama administration, and effectively lifted US economic sanctions on Iran. Since he took office, Trump has continued his “worst deal ever” rhetoric on the JCPOA, simultaneously painting a picture of Iran as a leading state sponsor of terrorism.
Despite certification that Iran is in compliance with JCPOA, Trump has imposed non-nuclear sanctions on the nation, the latest series targeting 18 Iranian individuals and groups ranging from Iranian-based companies that are allegedly aiding the country’s drone programme, to a provider of naval equipment based in Turkey. The price of crude oil was expected to rise as a result, and, indeed, on 19 July – the day after the announcement – WTI Crude rose above $47 before quickly dropping down back below $45 two days after reports of increased oil output from OPEC trickled through.
Tensions between the US and Iran have ratcheted up ever since Trump moved into the White House, and it will be interesting to see how the markets react once Iranian president Hassan Rouhani — who was re-elected in a triumphant landslide back in May – is officially inaugurated on 5 August. “As soon as Rouhani sealed his victory in May, the Tehran Stock Exchange index recovered the 5% loss from the beginning of 2017” comments Jameel Ahmad, VP of Market Research at FXTM. “With Rouhani’s reformist stance and his open approach towards the rest of the world, investors will be following the impact of his presidency. Investor sentiment towards Iran, and the price of Oil and Gas will be of particular interest. Thanks to Rouhani’s positive push towards increased oil production and bringing the economy back to pre-sanction levels, it is possible that Iran will be considered as a potential investment destination for foreign companies.”
The French energy conglomerate Total, together with the China National Petroleum Corporation (CNPC), signed a multi-billion dollar contract with Iran in early July to continue developing the South Pars gas field. This 20-year deal is in line with an increased global focus from Europe and China, one that is diametrically opposed to Trump’s isolationist agenda. This significant foreign investment in Iran does not end there, Gholamreza Manouchehri, deputy for development and engineering at the National Iranian Oil Company, has stated that President Rouhani has set the goal of signing at least another 10 such deals before the Iranian New Year (20 March, 2018).
While Rouhani’s inauguration on 5 August could likely encourage volatility in the oil markets in the short term, the formal confirmation of his presidency will make world headlines and will influence geopolitical sentiment. His presidency heralds a prosperous economic future for Iran, which will be a driving force for oil prices in the long term and it will attract the attention of both currency traders and investors. For the moment, oil is more directly impacted by OPEC decisions, such as those seen on 24 July, where Saudi Arabia and Nigeria agreed to a further cut and cap, respectively.
Many political and external factors are at play when it comes to Iran, as long as the nation maintains close ties to beleaguered Qatar, with whom it shares the South Pars gas field, volatility in both the oil and currency markets will can’t be ruled out.
That said, with Rouhani’s economic reforms moving ahead, there’s a possibility that those in the oil and forex trading business will start looking at Iran more favourably. Only time will tell what the biggest stabiliser will be for the oil markets. In the meantime, whenever Iran or President Rouhani make headlines, investors will be taking notice.
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