Higher Oil Prices?

Here one scenerio what will happen in Egypt (a far away quiet archrival sworn enemy of Iran) and global follows

Al Ahram
Experts agree that US President Donald Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), the Iran nuclear deal, will lead to an international hike in oil prices since it puts at risk Iranian oil exports to Europe and Asia.

After sanctions on Iran were lifted in 2016, it increased its daily oil production by a million barrels. Of its daily production of 3.8 million barrels, Iran exports 2.5 million. China, India and a number of other Asian countries are the biggest markets for Iranian oil exports.

Part of this amount may now be compromised by the US decision to withdraw from the nuclear deal and to re-impose sanctions on Iran. The price of a barrel of oil reached almost $80 after the Organisation of Petroleum Exporting Countries (OPEC) and Russia agreed in 2016 to reduce the global oil supply by two per cent, or about 1.8 million barrels a day, until the end of 2018.

“Trump’s decision to withdraw from the JCPOA is bad news for Egypt. If oil prices increase, it will not be able to meet its target for the budget deficit,” said Aya Abdallah, an economic analyst with Sigma Capital. The government hopes to reduce the country’s budget deficit to 8.4 per cent of GDP in 2018-2019.

The government’s budget for fiscal year 2018-19 relies on a guide price for the price of a barrel of oil of $67. Any increase on that price would affect the budget deficit and drive the government towards more debt, Abdallah said. It would also negatively affect the positive outlook on Egypt given by international financial institutions and rating agencies.

On 11 May, the ratings agency Standard & Poor’s (S&P) upgraded Egypt’s sovereign credit rating from B- to B. However, it also warned that the rising cost of debt and security threats could pose a danger to Egypt’s recovering economy.

“Negative pressure on the rating could arise if Egypt’s plan to gradually reduce government debt to GDP is derailed by fiscal slippages, higher borrowing costs, or more pronounced currency depreciation than expected, or if foreign-reserve levels were to fall significantly. We could also see negative pressure on the rating if the security environment worsens, hindering the recovery in investment and tourism,” it said.

Experts expect the US sanctions on Iran to trigger a scenario in which the market for crude oil will shrink precipitately in the second half of this year and could well spill over into the next.

An increase as small as one dollar in the price of a barrel of oil translates into a LE4 billion rise in the cost of oil subsidies in the budget, said Riham Al-Dessouki, an economic expert. She added that “a global rise in the price of oil would mean Egypt having to bear more expenses.”

According to its financial statement for the 2018-19 budget, the government is seeking to decrease oil subsidies by 26 per cent, a move anticipated to take place before the start of the new fiscal year. It has allocated LE89 billion for fuel subsidies in the coming fiscal year.

A government source told the media last week that higher oil prices would affect the subsidies bill during the current fiscal year. He expected a LE5 billion increase on the targeted LE110 billion in the budget, and added that the government would likely not be able to achieve its targeted subsidies cut.

“Even if the cuts go into effect, the bill will still be affected,” he commented.

Economic expert Hani Tawfik said the US withdrawal from the JCPOA could trigger a war with Iran, or US military strikes against Tehran.

Should this happen, Egypt’s foreign currency inflows from expatriates, foreign investments, and tourism revenues could all be affected, he said, adding that “a war between the US and Iran could take the price of a barrel of oil up to $140 or $150.”

Global (Credit to NPR)

Crude oil prices have been rising for months and could climb higher now that the United States is pulling out of the Iran nuclear deal.

Well, if you want a visible sign of the uncertainty being caused by President Trump's decision to withdraw from the Iran deal, keep your eye on oil prices. They have been rising steadily for a bunch of reasons. The price of crude is up more than 15 percent this year, and Iran is a major oil producer. So this decision could roil energy markets around the world

The price of crude topped $70 a barrel. That was its highest level since 2014, and that was...

Everybody was anticipating.

What about supply? I mean, once the Trump administration reinstates sanctions - the big takeaway from today - when sanctions kick in again on Iran, what might that do to oil supplies?

We don't know exactly how these sanctions are going to play out. But the U.S. could punish or threaten any country that ignores the U.S. sanction, and it doesn't - and doesn't curb its oil imports from Iran. It could do that diplomatically. It could do that by punishing the banks from those countries, cutting off some of their access to the U.S. financial system. But here's something to keep in mind. Oil supplies - they're fairly tight right now, and that's one of the factors that's been pushing up prices. You know, a few years ago, there was this huge glut of oil

All the big oil producers, including the U.S. - they were pumping a lot of crude. And the price of oil got dirt cheap. It fell to around $27 a barrel. Now that glut is being absorbed. There's more demand. Economies around the world are improving. And if sanctions take some of Iran's oil off global markets, we could see even tighter supplies and higher prices.

We watch and wait and see how today's decision on the Iran deal may impact those forces - but back to this central question of Iran. Just described it as a major oil producer. Where do they rank?

Well, it's major. Iran was the world's fifth-largest oil producer last year, accounting for about 5 percent of total output. So it's significant, but it's not one of the oil giants. So are there - there are definitely factors beyond Iran that have been affecting the price of oil. You know, as I mentioned, there was this oil glut back in 2016. And in December of that year, Russia and Saudi Arabia and a number of other countries - they joined hands to limit production. They agreed to sell less oil into the global market. And surprisingly, that's worked 'cause those kinds of deals usually fall apart because of cheating.

Cheating. The goal of these joint deals is to increase prices by limiting production. That takes time, and a lot of oil producing countries - they're pretty weak economically, so they need cash right away. So they go ahead. They keep producing and selling as much as they can. They cheat, and the deal falls apart. But this time, it worked largely because Saudi Arabia and Russia, two of the world's largest oil giants - they've stuck together and kept their promise to cut output.

So if gas prices go a lot higher, that could crimp consumer spending and have an impact on the broader economy.