Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Lifting Sanctions on Iran a Mixed Bag

Stock-Markets / Financial Markets 2016 Jan 25, 2016 - 04:06 PM GMT

By: John_Browne

Stock-Markets

From a financial perspective, the New Year has been anything but happy. As of January 20th, the S&P had fallen over 9% since the beginning of the year, to levels not seen since 2014,reflecting a loss of some $2 trillion in market value. Compounding matters was the 30% collapse in oil prices, which brought crude down to the lowest levels in 13 years. The New Year has also seen further evidence of recession in the U.S., which has appeared in a string of bad manufacturing service sector data.


Into this volatile mix comes news that the conclusion of nuclear talks with Iran and its release of Western hostages has led to a lifting of sanctions on Iran. These developments allow Iran, a country of nearly 80 million people, to reintegrate into the world economy after years of sanctions stemming from its nuclear program. This process will have a dramatic, but, as yet, undetermined impact on the already fractured Middle East and on the increasingly connected global economy.

The immediate effect will be that Iran's imports and exports will rise. As far as exports are concerned, that only really means one thing: Oil. Iran's oil exports are forecast to be able to add some 500,000 barrels a day, as Iran's deputy oil minister has been quoted, to an oil market already threatened seriously by oversupply. This new supply comes at a time when central banks are already "struggling" to keep inflation up. More oil on the market means lower prices, which means lower inflation. This could impel central banks around the world to continue to shower the markets with monetary stimulus.

Measured against global production of 97 million barrels a day, as forecast by the IEA Oil Market Report, Iran's five hundred thousand barrels per day seems trivial at just over one half of one percent. Also, it will take time for Iran to bring its full production on stream. It won't be long before the Western energy companies jump into the market with both feet in order to bring Iran up to speed on all the new extraction techniques that the Iranians have missed as a result of sanctions. Just today, the Wall Street Journal announced that Schlumberger, the world's largest oil field operator, was looking to re-acquire its Iranian subsidiary that it was forced to divest when the sanctions were first imposed.

However, as we know, prices for anything are set at the margin, and Iran's added production will increase the current OPEC surplus production of 1.6 million barrels by an additional 30 percent, at the least. In addition, recessionary forces may drive oil consumption down even further, placing additional weight on prices.

Oil importing nations will benefit substantially from lower oil prices, as will consumers whose gasoline bills are plummeting. In some cases, U.S. gas prices are now well below $1 a gallon. According to the U.S. Energy Information Administration, Americans consumed a daily average of some 374 million gallons or 8.92 million barrels of gasoline in 2014. But this year's fall in oil and gas prices has not yet been reflected in a rapid increase in consumer spending.

Lower oil prices could provide an economic shock to oil-producing nations in three important ways. First, national oil revenues would fall, forcing possible cuts in government spending. According to 2014 statistics from Alliance Bernstein, countries like Saudi Arabia, Iraq and Iran have the world's lowest production costs of around $20 a barrel. They would suffer far less than Russia, the U.S. and Canada, with production costs of above $80 a barrel.

Second, and perhaps more importantly, is the effect of lower oil prices on corporate and national budgets, particularly those of oil producers that were formulated on estimates of far higher prices. Already, lower prices are hurting the high yield markets, causing concern of spreading contagion in debt markets. Oil prices that had been kept high for many years as a result of monetary stimulus sent false signals about future prices to the market and caused industry to make unneeded investments in production. Now that the bubble is bursting, the ensuing bankruptcies and write downs threaten a wider crisis.

Finally, the budgets of many oil producing nations were formulated on the basis of higher oil revenues. Saudi Arabia's 2015 budget is believed to have been calculated on the basis of $98 oil and Russia's on $100 oil. The Venezuelan economy, already reeling from years of a horrific socialist government, will face additional headaches.

Dramatic shortfalls in these projected oil revenues may not be matched easily by cuts in government spending without causing political unrest. However, many of the major oil producing nations have accumulated vast wealth in so-called sovereign wealth funds (Sovereign Wealth Fund Institute), which are government owned. These have diversified into many non-oil-related assets, including equities, particularly in U.S. markets. If these funds are forced to execute substantial sales in order to finance government budget deficits, international asset prices, including equities, can suffer.

On the bright side, Iran can be expected to spend significant sums on imports from the major countries that agreed to the lifting of sanctions. There is no doubt that Iran's young population is hungry for the Western goods that it has been denied for so many years. However, care should be exercised to ensure that Iran does not increase the financing of international terror or acquire dangerous military imports at the same time, particularly those technologies associated with the delivery and accurate targeting of nuclear missiles.

Although bringing Iran back into the family of nations may be a good idea in theory, for the reasons stated above, her return could not have come at a worse time. Another big question is what did the U.S. give away strategically in order to achieve this Pyrrhic victory? Sadly, only time will tell on that score. A wealthier Iran does not bode well for Saudi Arabia andprotectors of the Sunni-led status quo across the Muslim world.

Read Original Here

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules