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Page added on November 2, 2014
Iran a ‘time bomb’ for oil prices
Markets should look for “a significant additional political risk premium on the price of Brent” if nuclear arms talks between Iran and major world powers break down, Nomura has warned.
If Iran walks away from the negotiation table over the proliferation of nuclear weapons technology in the country, markets could easily be spooked over the region’s stability and that could affect the price of Brent, which has tumbled since June, Nomura’s senior political analyst Alastair Newton said in a note Thursday.
“Iran could bring politics very much to the fore again in determining the price of Brent crude before year-end,” Newton warned.
Brent crude for December delivery fell below $86 a barrel on Friday to $85.41 as a stronger dollar and over-supply combined to put pressure on the benchmark. The price has slipped more than 9 percent so far in October, its biggest monthly drop since May 2012, and a quarter since June.
The deadline for the completion of negotiations between Tehran and the so-called P5+1 group which comprises the five permanent members of the UN Security Council (China, Russia, France, the U.K. and the U.S.) plus Germany is on November 24.
“In the event of no agreement by the 24th, I think that the U.S. Congress would impose fresh sanctions anyway,” Newton said. He added there were grounds for caution that the likelihood of agreement was less than 50 percent.
An eighth round of talks was held earlier this month; but major issues over Iran’s uranium enrichment, UN inspections and ratcheting back sanctions imposed on the country remain unresolved. Although talks could be extended, there is no certainty of this.
“If, for one reason or another, negotiations do collapse market participants are likely to focus on the proximity of the January to April period when weather conditions in the Gulf region are generally at their best for military operations,” Newton said.
“They will recall that in March 2012 Brent crude went to $128 per barrel out of concern that Israel would strike against Iran’s nuclear program. Against this backdrop, I would expect markets to be looking for a significant additional perceived political risk premium on the price of Brent.”
Newton said that if Iran recommenced work on its heavy water reactor at Arak, thought to be just six to nine months from completions, Israeli Prime Minister Binyamin Netanyahu would “be faced with a very tough decision” and could choose to bomb Iran before the fuel rods were installed allowing it to move into long-term weapons-grade plutonium production.
“Based on Israel’s track record, I think a military strike would be a high probability,” Newton said. “However, I also think the Iranians understand this and, based on their track record, would probably hold back from any act which would risk an Israeli strike.
“Thus, any Iran-related spike in the price of oil in the first quarter of 2015 would be unlikely to be sustained,” he said.
6 Comments on "Iran a ‘time bomb’ for oil prices"
dissident on Sun, 2nd Nov 2014 6:50 am
The markets will not be spooked. They are manipulated by a few of those major powers.
Davy on Sun, 2nd Nov 2014 9:07 am
It would be interesting to see how oil prices react to an Israeli airstrike on Iran and the likely Iranian response and US involvement. It is a given that this will be a negative for the global systematic health at a time when that health is already dangerously exposed with financial repression having hit limits of growth and diminishing returns.
The financial issues are further compounded by a new cold war and multiple other smoldering global brush fires. I personally don’t see how the global economy could survive an Iranian war. The economic situation is currently very unstable for all the major powers despite the cornucopian view of TPTB. I imagine oil prices could react violently on an Iranian war both up and down. Up initially but down as clear evidence mounts that the global economy is unravelling. One other interesting point is the China card. This will clearly disrupt China’s oil supply. Maybe this is why they are pumping up their SPR.
I hope negotiation continue because a Iranian war is one of those black swan events that will make a serious and deadly impact to our global system. PO and a slow financial correction are dangerous but appear to be happening over a time frame. We may be able to mitigate this PO/Financial fall to a softer landing. An Iranian war would be sudden and dramatic. We may find a soft landing to a reboot with PO/financial correction. I imagine an Iranian war will be a hard landing with a much deeper reboot level.
Plantagenet on Sun, 2nd Nov 2014 10:49 am
It seems unlikely to me that the US-Iran nuke talks will collapse into failure. Based on past behavior it is much more likely that Obama will wimp out and give in to all the Iranian demands.
bobinget on Sun, 2nd Nov 2014 11:13 am
It’ so, so much more complicated then “Iran’s demands”.
#1) Israel, because of it’s insatiable demands have become a giant pain in the ass. Notice that Israel is almost never mentioned f
bobinget on Sun, 2nd Nov 2014 11:53 am
(my laptop seems to had premature ejaculation)
Cont./ Israel continues to add ‘settlements’ in Palestinian territory at an advancing rate.
The plan is obvious, precipitate a crisis.
Israeli PR working overtime using recent stupid Iranian judicial judgments to show how crazy Islamic fundamentalists in charge, can be.
http://www.irishtimes.com/news/world/middle-east/iran-jails-woman-over-volleyball-match-
protest-1.1985149
Iranians calmly claim most of their death sentences part of their ‘war on drugs’. Leaving out men and women state murdered for adultery and blasphemy.
If murdering drugs dealers worked, Mexico would be drug free.
http://www.businessinsider.in/These-5-Countries-Execute-The-Most-People/articleshow/44951834.cms
It was if all this Iranian state sponsored terrorism somehow would mask a half century of Israeli
cruelty. Again IMO: current right wing Israeli leaders
need wars and the threats of war to stay in power.
If no nuclear agreement is reached, Israel promises
attacks on Iranian *nuclear infrastructure*
resulting in missile counter attacks on western oil supplies in Saudi Arabia. Of course, it gets much worse. In the mideast the saying goes: ‘it’s never as bad as it will be’.
* In effect, even if Israel uses ‘conventional’ weapons
to destroy infrastructure., hundreds of thousands will perish from resulting airborne, varied radioactive elements.
I can envision Russian missiles hitting Tel Aviv. US
missiles hitting Russia and oil prices higher.
jjhman on Sun, 2nd Nov 2014 10:01 pm
On the other hand if there are successful negotiations the price of oil could drop like a rock. With sanctions Iranian oil exports have been significantly reduced. The big risk might be a real gusher of Iranian oil on the market.