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How does situation in Iran affect oil price?

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Strenghtening sanctions against Iran and declining exports keep crude prices up

Heating arguments over Iran’s nuclear program have managed to bring oil exports of the country significantly down, which supports high prices on the global markets. Closely following the situation in Iran is crucial for traders who want to make profits from oil.

Oil export of Iran

According to official estimates the oil export of Iran has dropped by some 40 percent for a year as both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency have reported that Iran’s oil exports fell drastically in the end of 2012 in comparison to the previous year. This drop in oil exports had to be acknowledged by Iranian institutions too, as the budget of the country starts to suffer from unfulfilled oil revenues. Sanctions from the west may become even more severe and if President Mahmoud Ahmadinejad decided to fill the budget gap through recalculating the official exchange rate, this would make inflation grow greatly in the country.

Iran’s nuclear program

The sanctions on Iran have been intensifying for the past few years and the situation of the country and its future moves are for sure to affect the oil market. If Iran comes to terms, then the price of oil will start to decrease. At the same time further sanctions and decreasing oil exports would keep pushing the price up. If the crisis caused by Iran’s nuclear program heated up, the price of crude oil would follow. The continuing turmoil in the Middle East also causes oil prices to rise, as countries in the region make a transition from certain stability to a more volatile political situation.

Iran to accepts conditions

World powers and Iran have recently agreed to meet in March and April in order to discuss a proposition for sharp reduction of Iran’s stockpile of uranium and other measures related to Teheran’s nuclear program. World powers demand that Iran accepts conditions that constrain the ability to quickly resume enrichment of uranium. If somehow the meetings coming in the spring paved a way for reaching an agreement with Iran, a number of sanctions could be lifted taking oil prices rapidly down.

Disclaimer: The article is written for informative purposes only and it is not financial advice. The author does not have any position in the currency pairs mentioned, and no plans to initiate a position. He wrote the article himself and expressed his own opinions. He has no business nor personal relationships with any mentioned government entities or stocks. Readers should not treat any opinion expressed by the author as a specific inducement to make a particular trade or follow a particular strategy, but only as an expression of his opinion.

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