A major improvement in Iran’s economic prospects following the nuclear talks breakthrough has been the big business story in the Middle East in recent days.
Everyone will have access to Iran's trade, banking and oil industries, which opens the door to new investment opportunities, whether from Iran to the region or vice versa, which will also increase the trade in the Iranian Riyal and other regional currencies
The West’s initial agreement in nuclear talks with Iran offers a glimmer of hope to Tehran, which has been burdened by sanctions for many years.
Today a page has turned in Iran’s history, with talk sanctions being lifted. It could allow this resource-rich country to regain its place on the economic map, regionally and globally.
Oil market concerns
However, at the same time, concerns have been raised in oil markets, as this adds on to an already difficult time.
Over the years, various economic sectors have been suffering from sanctions imposed by the West on Iran. Banking and oil were hit especially hard.
Iran’s been isolated from the international banking system and the Iranian Rial has dropped more than two-thirds against the US dollar.
The EU also imposed a ban on Iranian assets owned by the central bank and on trade in gold and precious metals.
The oil sector, which represents 60% of Iranian government revenue, saw a sharp decline in exports, while government spending rose.
Also, there are more than 30 million barrels of crude oil sitting at Iranian ports waiting for the green light to be shipped directly to markets.
Last Thursday’s historic agreement could lead to a lifting of the West’s sanctions. The breakthrough provides a framework upon which a final agreement could be struck by June 30th.
It ha been reported that the lifting of sanctions by major countries will be done in phases and would not take full effect before the end of the year.
The Abu Dhabi perspective
To shed more light on the issue, BME’s Dahleen Hassan got the views of Nour eldeen Al Hammoury, Chief Market Strategist at ADS Securities in Abu Dhabi.
“After the Lausanne talks OPEC was quick to announce that the oil market would not be affected in the short term. How do you interpret this and what is the outlook in the long-term?”
Nour eldeen Al Hammoury
“Of course there is no immediate effect on supplies as the sanctions are still in place and there will be no increased production from Iran until at least the 30th of June, while everyone is waiting for the OPEC meeting. If they sign the agreement then, yes, oil supply will be higher with more than 1 million barrels per day, according to the figures from Iran, and if OPEC keeps production levels on hold, oil prices might remain under pressure.”
“If the economic sanctions on Iran were lifted, how would that affect currency trading in the region?”
*Nour eldeen Al Hammoury”
“Its not only regionally, its globally. The agreement is positive for the US dollar, of course, as it’s seen as an achievement for the US in the region, rather than getting into another war situation. Everyone will have access to Iran’s trade, banking and oil industries which opens the door to new investment opportunities, whether from Iran to the region or vice versa, which will also increase the trade in the Iranian Riyal and other regional currencies.”
“ How might the Iranian Rial react?”
Nour eldeen Al Hammoury
“ Well, after the Iranian Riyal lost more than 80% of its value due to the sanctions that started in 2011, so the agreement with the West should be positive for the Riyal, which might recover some of its value in the next few years, especially if the banking sector sanctions are lifted. Most of the trade agreements with Iran will be in the local currency as well as the US dollar.”
Obama’s dollar worries Barack Obama expressed his concern about the impact of a higher dollar on US exports: “The economies in Europe are week, the economies in Asia are week, the dollar’s becoming stronger because a lot of people want to park their money here.
“They think it’s safer, they are investing here more. That makes our exports more expensive. We gotta stay hungry. We can’t just sit back and assume that growth continues at the kind of pace that we need to give opportunity to young people in the future.”
“Nour, this is the first time Obama has hinted at the US economy being affected by a strong dollar, what’s the message he wanted to convey?”
Nour eldeen Al Hammoury
“The president’s statement about the stronger dollar could be an attempt to explain why the US economy has slowed down, especially after the US Jobs Report, which was extremely disappointing and a long way off the markets’ estimates. So his statement might be seen as a clear hint to the markets that if the US Dollar keeps on rising the US economy may face a period of low growth. It could also be an attempt from the president to stop the US dollar rally or to ease it, which has happened, allowing the euro to spike above 1.10, up from 1.08.”