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Monday, January 18, 2016

Iran sanctions lifted: Good for diplomacy, bad for oil market.

On Sunday, a triumphant President Barack Obama praised a historic deal with Iran that successfully curbed the country's nuclear program and paved the way for smaller diplomatic victories like negotiating the swift release of U.S. Navy sailors and of four American prisoners held on vague charges.

"This is a good day," Obama said during a press conference. "Once again, we’re seeing what’s possible with strong American diplomacy."

But it's not a good day for everyone.

While the news that Iran has fulfilled its obligations under the landmark nuclear deal provides the Obama administration a decisive diplomatic win, it has also resulted in the U.S. and Europe lifting strict economic sanctions on the country, quickly sending aftershocks throughout the Middle East and beyond.

Iran, now free to re-establish economic ties with the world and access $100 billion in frozen assets, has already added to concerns about collapsing oil prices, increasing tensions in the Middle East and the all-important fate of McDonald's in Iran (yes, really).

Iran, whose oil output was long restricted by the sanctions, is now expected to boost its oil production by 500,000 barrels a day, adding to the overabundance of oil supplies, largely from Saudi Arabia, that pushed the price of oil below $30 a barrel this week for the first time in 12 years.

The oil glut has resulted in layoffs at U.S. energy companies and, combined with the ongoing market collapse in China, has helped drag down the global stock markets throughout the year to date.

On Sunday, stock markets in the Middle East crashed on news of the expected surge in Iran's oil exports.

That development could also further enflame the combative rhetoric and mounting tensions between Iran and Saudi Arabia just weeks after Saudi Arabia executed a Shiite cleric popular in Iran. 

On the other hand, the lifting sanctions reduce barriers for Western companies to do business in Iran. And as the BBC was first to note, that has raised plenty of speculation about whether McDonald's, the American fast food giant, will open its doors in Iran.

McDonald's, for its part, has had an application available on its website to open franchises in Iran available for several months, but no launch date has been determined as of yet.

Not all sanctions have been lifted in Iran, however, as Obama clarified in his remarks Sunday. In particular, the U.S. has imposed new sanctions on individuals and companies working to foster Iran's ballistic missile program. 

By: Seth Fiegerman. 

Review: Emerging Market Formulations & Research Unit, Flagship Records.
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