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Iran’s Oil Deal and the Struggle Ahead

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Iran Oil

The Iran nuclear deal negotiated by the 5 permanent members of the UN Security Council, US, UK, Russia, China, and France plus Germany defuses the long-standing tension between Iran and the West, potentially changing the political landscape of the Middle East. But what about Iran’s oil and its impact on the economic landscape?

For years Iran’s economy has been crippled by US sanctions, and this includes its oil production. Iran has the 4th largest oil reserves in the world, coming in at an estimated 158 billion barrels, but lack of investment has led to a serious decline in production capacity. In 2008 Iran’s oil fields produced 4 million barrels of oil a day, in 2015 it’s down to 2.8 million barrels. Today its markets have diminished with exports going mostly to China, India, Japan, South Korea, and Turkey.

The question now is how much, if any, will Iran’s resurgence impact oil prices? There are two issues – how much they currently have in storage and what they can ramp up in terms of production. Iran does indeed have oil sitting there – stored mostly in tankers off the coast.  However, Citigroup’s head of commodities research Edward Morse described the amount of oil in tankers as a bit misleading. “Of that 40 million barrels or so roughly two-thirds is either condensate or condensate blended crude oil. The condensate can be exported under the sanctions regime, so the question is why has it not been exported, and the answer is almost certainly that it is so high in sulphur content that no refinery anywhere in the world wants to take it on, except at a very steep discount. So I’d say two-thirds of that 40 million barrels is not really overhanging the market, only one-third is.”

So we are talking 13 million barrels, which is hardly going to have a dramatic initial impact. It will also be 6 months before sanctions are realistically lifted. Iran will be unlikely to want to unload it all at once and crash prices. It’s possible other countries may also increase their production to hold market share which will lead to the price being driven down.

The International Energy Agency (IEA) estimates that Iran could potentially increase its product to 3.5 million barrels per day “within months of sanctions being lifted.” Others such as Richard Nephew (who served as lead sanctions expert for the US team negotiating with Iran) are less sure. He describes Iran’s oil producing infrastructure as plagued by “fatigued fields and antiquated equipment.” Some estimate the cost of getting Iran’s production back to pre-sanction levels as between $50 billion and $100 billion – which will need to come from foreign investment. This could take years, as high in investors’ minds will be the risk of the nuclear deal falling over and sanctions being reimposed.

Iran wants to recover its position as the number 2 oil producer in the world after Saudi Arabia, and this could conceivably be good too for the West – with oil prices being pushed down, but the bottom line is any dramatic changes are many years, some might argue decades off. In the short term, the impact of the nuclear deal is simply this: prices are unlikely to increase. According to Thomas Pugh, commodities economist at consultants Capital Economics, “the return of Iranian oil exports over the next year is one factor likely to keep oil prices low.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

IMF Report: Nigeria’s Inflation to Dip to 26.3% in 2024, Growth Expected at 3.3%

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IMF global - Investors King

Nigeria’s economic outlook for 2024 appears cautiously optimistic with projections indicating a potential decrease in the country’s inflation rate alongside moderate economic growth.

The IMF’s revised Global Economic Outlook for 2024 highlights key forecasts for Nigeria’s economic landscape and gave insights into both inflationary trends and GDP expansion.

According to the IMF report, Nigeria’s inflation rate is projected to decline to 26.3% by the end of 2024.

This projection aligns with expectations of a gradual easing of inflationary pressures within the country, although challenges such as fuel subsidy removal and exchange rate fluctuations continue to pose significant hurdles to price stability.

In tandem with the inflation forecast, the IMF also predicts a modest economic growth rate of 3.3% for Nigeria in 2024.

This growth projection reflects a cautious optimism regarding the country’s economic recovery and resilience in the face of various internal and external challenges.

Despite the ongoing efforts to stabilize the foreign exchange market and address macroeconomic imbalances, the IMF underscores the need for continued policy reforms and prudent fiscal management to sustain growth momentum.

The IMF report provides valuable insights into Nigeria’s economic trajectory, offering policymakers, investors, and stakeholders a comprehensive understanding of the country’s macroeconomic dynamics.

While the projected decline in inflation and modest growth outlook offer reasons for cautious optimism, it remains essential for Nigerian authorities to remain vigilant and proactive in addressing underlying structural vulnerabilities and promoting inclusive economic development.

As the country navigates through a challenging economic landscape, concerted efforts towards policy coordination, investment promotion, and structural reforms will be crucial in unlocking Nigeria’s full growth potential and fostering long-term prosperity.

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South Africa’s March Inflation Hits Two-Month Low Amid Economic Uncertainty

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South Africa's economy - Investors King

South Africa’s inflation rate declined to a two-month low, according to data released by Statistics South Africa.

Consumer prices rose by 5.3% year-on-year, down from 5.6% in February. While this decline may initially suggest a positive trend, analysts caution against premature optimism due to various economic factors at play.

The weakening of the South African rand against the dollar, coupled with drought conditions affecting staple crops like white corn and geopolitical tensions in the Middle East leading to rising oil prices, poses significant challenges.

These factors are expected to keep inflation relatively high and stubborn in the coming months, making policymakers hesitant to adjust borrowing costs.

Lesetja Kganyago, Governor of the South African Reserve Bank, reiterated the bank’s cautious stance on inflation pressures.

Despite the recent easing, inflation has consistently remained above the midpoint of the central bank’s target range of 3-6% since May 2021. Consequently, the bank has maintained the benchmark interest rate at 8.25% for nearly a year, aiming to anchor inflation expectations.

While some traders speculate on potential interest rate hikes, forward-rate agreements indicate a low likelihood of such a move at the upcoming monetary policy committee meeting.

The yield on 10-year bonds also saw a marginal decline following the release of the inflation data.

March’s inflation decline was mainly attributed to lower prices in miscellaneous goods and services, education, health, and housing and utilities.

However, core inflation, which excludes volatile food and energy costs, remained relatively steady at 4.9%.

Overall, South Africa’s inflation trajectory underscores the delicate balance between economic recovery and inflation containment amid ongoing global uncertainties.

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Economy

Discontent Among Electricity Consumers as Band A Prioritization Leads to Supply Shortages

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In Nigeria, discontent among electricity consumers is brewing as Band A prioritization by distribution companies (DisCos) exacerbates supply shortages for consumers in lower tariff bands.

The move follows the Nigerian Electricity Regulatory Commission’s (NERC) decision to increase tariffs for customers in Band A, prompting DisCos to focus on meeting the needs of Band A customers to avoid sanctions.

Band A customers, who typically receive 20 to 24 hours of electricity supply daily, are now benefiting at the expense of consumers in Bands C, D, and E, who experience significant reductions in power supply.

The situation has ignited frustration among these consumers, who feel marginalized and neglected by DisCos.

Daily Trust investigations reveal that many consumers in lower tariff bands are experiencing prolonged power outages, despite their expectations of a minimum supply duration.

Residents like Christy Emmanuel from Lugbe, Abuja, and Damilola Akanbi from Life Camp are lamenting receiving less than the promised hours of electricity, rendering it ineffective for their daily needs.

Adding to the challenge is the low electricity generation, forcing DisCos to ration power across the grid.

As of recent records, only 3,265 megawatts were available, leading to further difficulties in meeting the demands of all consumers.

The prioritization of Band A customers has been confirmed by officials from DisCos, citing directives from the government to avoid sanctions from NERC.

An anonymous official from the Kaduna Electricity Distribution Company highlighted the pressure from the government to ensure Band A customers receive the required supply, even if it means neglecting other bands.

Meanwhile, the Transmission Company of Nigeria (TCN) has denied reports blaming it for power shortages to Band A customers. General Manager Ndidi Mbah clarified that recent outages were due to technical faults and adverse weather conditions, outside of TCN’s control.

Experts have criticized the DisCos’ prioritization strategy, arguing that it neglects the needs of consumers in lower tariff bands. Bode Fadipe, CEO of Sage Consulting & Communications, emphasized that DisCos cannot ignore the financial contributions from these bands, which sustain the sector.

Chinedu Amah, founder of Spark Nigeria, urged for optimized supply across all bands, emphasizing the importance of improving service levels for all consumers.

As discontent grows among electricity consumers, calls for fair distribution of power and equitable treatment from DisCos are gaining momentum.

The situation underscores the need for regulatory intervention to address the concerns of all stakeholders and ensure a balanced approach to electricity distribution in Nigeria

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