Market response to Iran deal an over-reaction Jatin Rathod Oil markets reacted to the deal between Iran and world powers when an agreement was reached to ease some sanctions on Iran. The agreement between Iran and permanent members of UN Security Council runs for six months and expects Iran to halt its efforts to improve its uranium enrichment capacity and allow increased monitoring of its nuclear programme. In return Iran would receive about $4.2 billion in oil money from accounts held abroad if it fulfills its commitments under the deal over the next six months. For nearly 10 months now sanctions have prevented Iran to receive the money against the oil it had exported. This sanction imposed by the US and approved by the Security Council crippled Iran’s economy and affected its foreign exchange situation severely. However, nowhere does the deal say that Iran will be allowed to export more oil. Easing of sanctions only meant that the country would be able to retrieve the money that is already due to it and kept in an escrow account in the importing country’s currency. India, the second largest importer of crude oil from Iran after China has kept the funds ready but in rupee form. It has been reported that Indian refiners will start transferring cash owed to Iran as early as next week. The denomination in which the amount will returned (rupee or dollar) is not yet clear, but there will be a slight impact on the Indian currency market. The general impression in the market is that easing of sanctions would mean more supply of Iranian oil. But that is not the case. Against the pre-sanction sales of 2.5 million barrels per day (bpd) the country is able to sell only around 1 million bpd. So is the easing of oil prices in the global market (2% in case of Brent crude) an over-reaction. It does seem so given that oil has recovered part of the fall by end of the day. Indian markets shot up today by nearly 2% on account of easing in oil prices which would, in turn, help strengthen the rupee and the current account deficit. So, just like oil prices have shot back the Indian markets will also retreat on this misconception.
Posted on: Tue, 26 Nov 2013 03:03:53 +0000
Trending Topics
Recently Viewed Topics
© 2015