Iran, Rouhani's Inauguration and the Global Markets

Since Donald Trump entered the White House at the beginning of the year, Iran has been at the centre of global tensions. It’s no secret that the US President is not a fan of the Iran deal, officially the Joint Comprehensive Plan of Action (JCPOA) which was signed and implemented under the Obama administration. Labelled as the ‘worst deal ever’ by Trump, the US lifted economic sanctions in Iran, on condition that they abide by the nuclear terms and conditions set out in the agreement. And even while he has certification of their compliance, Trump has been very vocal about his antipathy towards Tehran, and taking any chance he gets to slap some kind of penalty on Iran.

The most recent of these is a series of non-nuclear sanctions on 18 July, which affected 18 individuals and groups, including companies based in Turkey and China that are allegedly aiding Iran by providing naval equipment and electronics. While currency traders were barely affected, investors correctly predicted that this action would drive oil prices and indeed, WTI Crude jumped to a high over $47 the next day. It was a short-lived gain however, since two days later news of increased oil production from OPEC trickled through to bring the price down back below the $45 level. 

Within this unstable and tense geopolitical atmosphere, Iran’s President Hassan Rouhani is set to be inaugurated on 5 August. The biggest question for those with an interest in forex trading, is how this event will impact the global markets. Jameel Ahmad, VP of Market Research at FXTM says “When Rouhani defeated his conservative counterparts and got re-elected in May, the local markets reacted positively, with the Tehran Stock Exchange index recovering on the 5% loss it had held for much of 2017. He’s an economic reformist, with big plans for the future of Iran and its oil production. He seems to be leaning towards a diplomatic approach with the rest of the world; all of which will be making investors and traders pay close attention to Oil and Gas prices.”

Indeed, foreign investors are paying more than just attention. Total – a leading energy company in France – partnered up with China’s national Petroleum Company to seal a deal with Iran on the expansion of the South Pars gas fields. This is a 20-year, multi-billion dollar deal that aligns with the current European and Chinese globalist approach. It’s wholly different to Trump’s ideology of isolation, and according to Gholamreza Manouchechri, a deputy at the National Iranian Oil Co., Rouhani’s vision for Iran’s near future includes 10 more deals just like the Total one.

Rouhani’s inauguration should shake up the global markets in a significant way. New leaders always move the needle, especially in this case, because Donald Trump is overtly at odds with the leadership. For now, the oil markets are being directed more by OPEC decisions, as seen on 24 July when oil extended gains after Saudi Arabia agreed to further cuts and Nigeria agreed to a 1.8m per barrel cap.

Iran, and by default, its president - is currently embroiled in too many controversies to be a clear-cut market stabiliser. Not only is it dealing with the label of being the world’s leading state sponsor of terrorism, but the future of the JCPOA is uncertain thanks to stubborn remarks coming out of Washington and Tehran. Another thorny issue is Iran’s close ties with Qatar (with whom it shares the South Pars gas fields) whose list of woes are adding to the volatility.  The global markets will continue to be guarded as long as Iran’s international reputation is driven by these external, negative, factors.

Rouhani’s inauguration and presidency will be closely watched by investors and local currency traders; if his vision pans out according to plan, feelings towards the region may tip towards cautiously optimistic. In the interim – investors will be factoring all related news into their trading plans.

 

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NOTES TO EDITORS

 

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