23 March, 2016
Being a major country in the Middle East, Iran’s future can affect the United States and other countries around the globe. In January 2016, a strike on the Saudi embassy in Iran caused Saudi Arabia to stop diplomatic affairs with Iran. It was also the month when economic sanctions and oil ban from Iran were removed.
That means Iran can trade oil with the world’s excess supply and that foreign accounts, which are held by Iranians, are now thawed as the funds within may be invested or spent. Even if economic conditions may recover in 2016, Iran is struggling under high inflation at 16.2 percent and high unemployment at 10.4 percent.
Here are the main reasons why Iran will be highly significant this 2016:
Iran’s Investment Dollars. United States President Barack Obama turned the tables of preceding presidents when he agreed to release Iranian assets. Since the 1970’s and expanding in the early 2000’s, sanctions against Iran prohibited Iranians with foreign bank accounts in the United Kingdom and United States from having an access to funds.
Since economic sanctions were elevated, Iranians can now access an approximately $30 billion to $100 billion of assets which had been thawed globally. Removing sanctions will now permit Iran’s 32,000 high net worth individuals to start spending.
Sectors in the United States with high Iranian populations will most probably benefit from new cash flows, as well as the residential industry in the United Kingdom. Luxury producers will also have an advantage from the elevating of economic sanctions, and because of this, GDP is forecasted to soar 5 percent in 2016.
Iran’s gains from funds will be extensive, supporting infrastructure in Iran and giving more funds to the global economies.
Oil Prices. Saudi Arabia seems to be executing a strategy of producing more oil to decrease Iran’s oil prices. This might have the short term effect of lower gas prices for now, but if everything reverses, higher prices in the future will be granted.
If another conflict appears in the Middle East, the crude oil supply will drop and gas prices will surge. News of conflict usually causes short-term gains in prices, and gas prices are the first reflection of supply and demand, even when entities including the Organization of Petroleum Exporting Countries attempt to agree in price-setting activities.
Crude prices reached an eleven year low in January 2016, as new seller of oil products joins the global market which can cause the pump to plunge further in the United States and anywhere else.
Elevated Crude Supply. As Saudi Arabia produces more oil, the price of Iranian crude for sale declines. Iran is not in a position to sell its oil for a huge discount since the country needs the revenue in light of recently elevated ban.
The Organization of Petroleum Exporting Countries’ attempts to set oil prices was not successful in light of Saudi Arabia’s high level, uninterrupted production, and Iran’s contribution to the global crude supply.
A climb in the already oversupplied oil reserves from the production and sale of crude products in Iran will further lower the price of gas in 2016. A rally in global oil supply will lead to reducing of oil prices, expecting there are no sudden amends in demand.
If political disputes rise between Iran and Saudi Arabia to the point that transportation of crude supplies is damaged, then oil prices could surge in response. However, the two major energy producers might not be at that point.
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