o President Obama, keen to look to his legacy, has agreed to the deal with Iran that sees it freed of nearly all sanctions and able to trade again.
That Obama's Foreign policy strategic ineptness is the biggest legacy of his Presidency, perhaps we should be worried...
Certainly timing wise this is a very bad moment for what has been years of negotiations to suddenly bear fruit.
From the perspective of Saudi Arabia, rapidly moving from key Western Ally to pariah state, it is a disaster. Saudi is spending lots of money fighting proxy wars with Iran across the region. The $100 billion stimulus to Iran is not welcome. Saudi and America are no longer friends and the tension between Saudi and Iran could get worse.
Furthermore, the oil price is under the worst pressure this century already. Iran is happy to pile in given it has been selling oil illicitly at huge discounts, not it can sell it openly with lesser discounts - so what about the price will be their feeling. Iran can add another 500,000 BOE per day easily in the next twelve months.
This last point has pushed the price of oil down to $28 today, marking a spectacular fall for 2016 already and we are only 2 weeks in. However, this downward pressure could be the last push to really crater the oil price. From here on in US Shale explorers are going to start going under, the Banks will have to foreclose on assets across the world and future investments will be stopped dead. All the while global demand for oil is still growing, even China imported 6% more oil last year.
At some point the market will call a bottom to the price, not that there will be an instant snap back, but always a good time to buy. This bottom is now likely to be in Q1 2016 I think.
Another wider issue for the world, is how come it will be sensible for the rest of the world to close down production and leave the only production centre in the dangerous Middle East, how will renewables ever survive and finally, how does cheap oil fight the 'climate change' war. All these 3 points will be covered at Davos and all lead to a world where somewhat higher oil prices will be welcome.
Also, I would not rule out a Saudi/Iranian contretemps in the Gulf, even if it is limited, it will handily but a firm end to the ever falling price of the commodity both economies survive on.
