How Can Forex Brokers Weigh Renewed Iran Sanctions’ Impact on Oil Prices?

Published on: 08/14/18 10:47 AM

Category: Uncategorised

Have you ever watched the movie, Ground Hog Day? Bill Murray continually lives the same day over and over again. It feels like Ground Hog Day as Iran sanctions caused oil prices to soar on August 7, 2018.

Iran Sanctions Impact Oil Prices

For years, the West Texas Intermediate (WTI) crude oil price had been languishing far below its all-time high of $147.24 on July 11, 2008. Once the first round of Iran sanctions were renewed as of 1201EDT, August 7, 2018 the WTI crude oil price soared to $69.00 making traders excited.

Americans are excited, hoping that these developments will Make America Great Again! The voters seem to believe that Iranian sanctions are bearing fruit. They believe that Iran will be punished severely. The sanctions should impact oil, gold, the American dollar and Iranian rial.

But, is this realistic? The energy markets have been down for years. Is Iran to blame for low oil prices?

Do Iran Sanctions Work?

Unfortunately, most American voters don’t really understand global geo-politics or economics. Forex brokers don’t have the luxury of being naive. They must assess the real facts on the ground.

Do Forex brokers understand why Turkey is important to Iran sanctions? It was reported alongside the crude oil prices that the Turkish lira continued to decline. Why is that significant?

Furthermore, on July 31, 2018, Turkey asked to join the BRICS. Why does this matter? It matters because Turkey is a very important nation that might prevent the Iranian sanctions from succeeding again.

Turkey has been an important NATO member for decades; but, when the United States attempted to stage a coup in the country, it started to turn to Russia. Turkey is purchasing Russian S-400 missile defenses, working to create a Turkish Stream oil pipeline from Russia to Europe and preventing the American Kurds from controlling Syria.

Iran sanctions did not work the first time because Turkey bought Iranian oil for gold. Well guess what, Turkey continues to buy Iran oil for gold. And, if Turkey joins the BRICS, it could increase purchases.

Been There, Done That

Iranian open market crude oil sales increased 33% when Iran sanctions were lifted under Obama. A careful statistical analysis show that at the peak of the crude oil price in 2008, the Iranian production was about the same as it was before the renewed sanctions.

Forex traders should not expect a long-term uptick in crude oil prices. The problem is not Iran, but global demand. Plus, gold prices should rise as Turkey buys more Iranian oil with gold. Sanctions didn’t work last time, so why will they work now?