Oil Prices Braces for Impact with Escalating US-Iran Tensions

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IRAN SANCTIONS, US-IRAN TENSIONS, CRUDE OIL PRICES – KEY POINTS

  • The newly escalating US-Iran political issues might affect the prices of crude oil.
  • The US is looking to extend the arms restriction past the October deadline
  • Geopolitical tensions not familiar with oil traders, will things change this time?

US-IRAN TENSIONS COULD BOOST BRENT

The escalating US-Iran political tensions could boost the prices of Brent crude oil if the struggling bilateral relationship led to increased concerns regarding the politically motivated supply disruptions. Also, the U.N Security Council is at the moment, getting ready to vote in the USA-led initiatives this week to further extend the arms restriction against Iran. In terms of the 2015 nuclear agreement, the countries made a deal to further suspend the right of Iran to freely buy and sell the military hardware past October in 2020.

Prices of Crude Oil Rises on Geopolitical Risks

Nevertheless, the most recent proposal by the United States seeks to further extend the ban indefinitely or until such a time when the council will decide otherwise. The new proposal is facing lots of opposition by China and Russia. The two countries hold veto power in the council that currently has 15 members. Technically speaking, any more resistance to join this venture with the US could further extend the rift between China and the US, who are already having trade issues and China’s national security law in Hong Kong.

With the cross-pacific trade talks quickly approach, lack of support for the US initiative might be another reason for disagreement amongst a series of others, including the fact that Hassan Rouhani, Iran’s president warning that the initiators of the arms ban might be held responsible for whatever happens next.

With the November election fast approaching, President Trump might consider a more aggressive approach towards Iran in efforts to score some political points for the devastating economic impact of COVID-19 pandemic. Any successful foreign policy in this area might add some points, especially if President Trump is able to add more sanctions against Iran.

As shown in the chart above, the crude oil’s consistent downside trend despite the escalating geopolitical tensions is commendable. As a growth linked commodity, the crude oil price action is largely based on the macro fundamental outlook.

So, although the US-Iran rising tensions could cause Brent Oil to experience volatility bouts, crude oil’s ultimate trajectory will be determined by the current business trends. Almost all countries around the world will feel the economic contraction caused by coronavirus pandemic. So, unless the new data points towards stabilization of the economy, the crude oil surge will without a doubt continue being capped by its demand, or lack of demand.

Crude Oil Price Outlook

The prices of crude oil are quickly approaching a critical point between the June upside trend and the pre-OPEC meeting plunge in early March. With the most recent developments, it’s highly likely that the selling pressure might start to hover around 41.35.

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