Oil prices rose sharply after the introduction of Iran's new leader. What does this mean?

The election of Iran's supreme leader Mojtaba Khamenei provoked an immediate reaction from commodity markets and another spike in oil prices. At the same time, on March 6, European experts denied the shortage of fuel in the markets. Why the appointment of a new supreme leader of Iran caused panic, what prospects the oil market expects and what this means — in the Izvestia article.

Market reaction

• After Iran announced that his son Mojtaba Khamenei had been elected to replace the assassinated supreme leader of Iran, Ali Khamenei, the market reacted with a sharp increase in oil futures. Their exchange rate reached $119.5 for the first time since 2022, and the Brent brand registered the sharpest weekly jump in the last six years.

• American stock indexes (stocks of the 500 most highly listed public companies in the United States) declined, which was evidence of doubts about the sustainability of the United States economy. At the same time, growth was demonstrated by the dollar and US Treasury securities — this is due to the fact that bond payments are tied to the Federal Reserve rate, and against the background of rising inflation and unemployment, the regulator is unlikely to reduce it. At the same time, the United States, at least, does not suffer from a shortage of oil supply, unlike Europe and the countries of the Asia-Pacific region.

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• European stock markets collapsed after oil broke the psychological mark of $100 per barrel. The drop in stocks was caused by fears that rising energy prices would accelerate inflation, especially since gas futures rose by 30% on March 9. And since inflation is accelerating against the background of very slow economic growth, Europe is actually threatened by stagflation, that is, a combination of inflation and economic recession, for which there are no effective tools.

• The Middle East crisis has also caused stock markets in Asia to plummet. Asian central banks face a difficult choice: fight inflation or support economic growth. The Reserve Bank of India is betting on economic growth, but is forced to sell dollars from its reserves in order to support the national currency and avoid the risk of capital outflow. Rising inflation is not so terrible for China, as the country has been struggling with deflation for a long time, and a strong yuan hindered economic growth. The conflict over Iran has been most difficult for South Korea and Japan, which are more dependent on world markets and low commodity prices than other Asian countries.

Iran's tightening policy

• Mojtaba Khamenei is considered a tougher politician than his father, so it is unlikely that he will now agree to negotiate with the United States, and the regime inside the country may become even more repressive. Despite the fact that Khamenei's son had been trained for this post for decades, the figure turned out to be a compromise: on the one hand, the ruling elites were against returning to the format of dynastic rule, but in the face of an existential threat, Mojtaba became an exponent of common interests and demonstrated the growing influence of the IRGC.

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How will the military confrontation in the Middle East affect the United States and Russia

The supreme leader of Iran was elected a few days ago, but his name was not mentioned due to Israeli threats to make him the target of further attacks. Therefore, the official announcement of the country's leader's name does not change Iran's strategy in the conflict in any way. But earlier, US President Donald Trump stated that he would not be satisfied with the candidacy of Mojtaba Khamenei to lead the republic, and this step showed that Tehran does not intend to obey American dictates.

• The choice of Mojtaba Khamenei as Iran's supreme leader may lead to an escalation of the conflict, especially since the country previously rejected the US demand to recognize "unconditional surrender," and Israel initially set out to overthrow the regime in the Islamic Republic and would not agree to Iran being led by the next Khamenei. At the same time, both the United States and Israel are already facing the consequences of the war in the Middle East: Israeli stock indexes are declining due to the global increase in energy costs, and gasoline prices are rising in the United States, and especially diesel, which is produced from Middle Eastern oil.

Europe's concerns

• Europe is already feeling the effects of the Middle East conflict and the partial blockade of the Strait of Hormuz, through which only Iranian-linked vessels can now pass. So far, there is no serious shortage of fuel, but the expectation that supply disruptions may last about three months, which was also spurred by the demonstration of continuity of policy in Iran, heightens fears in the markets. The International Monetary Fund is calling for preparations for the "unthinkable," as a prolonged conflict could affect "market sentiment, economic growth and inflation, which would create new demands on politicians."

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• On March 9, the United States and European countries in the G7 format discussed the possibility of releasing strategic oil reserves in the amount of 300-400 million barrels, but are not yet ready to apply this measure to curb fuel prices. Meanwhile, similar actions have been taken before — during the Gulf War in 1991, the NATO invasion of Libya in 2011, and twice over the conflict in Ukraine in 2022. But foreign experts point out that supply disruptions are now so widespread that the release of strategic reserves will not have a sufficient effect. Instead, France is preparing a tanker escort mission in the Strait of Hormuz.

• An additional threat to the global economy is the accumulation of oil in storage facilities, which forces the Persian Gulf countries to limit production. The UAE, Kuwait and Iraq have already reduced production. Bahraini company BAPCO declared force majeure on operations after the attack on the country's only oil refining complex. Saudi Arabia also reported a decrease in production: Saudi Aramco limited production at two fields. But it is assumed that the country still has a reserve for storing crude oil, and reducing volumes should help avoid a complete shutdown of oil fields.

What does this mean?

• The sharp rise in oil prices on world markets has shown that hopes for an early end to the conflict have not been fulfilled. Even after Europe and the United States announced the possible release of oil reserves, the price of Brent dropped to less than $ 103, but did not fall below the psychological threshold of $ 100, and after the statement of the leaders of the Group of Seven that as long as measures are limited to monitoring the situation, the cost of fuel may continue Grow up. Foreign analysts suggest that the escalation of the conflict may lead to an increase in oil prices by 50% compared to the current level.

• Russian oil and gas companies will benefit from the rising cost of fuel, as market trends and increasing fuel shortages may lead to a reduction in the discount on the Russian Urals brand. In addition, India has received permission from the United States to increase purchases of Russian oil, which means that supplies to this country will increase again. If the Iranian conflict continues, sanctions against Russian companies may be reviewed. But if the oil and gas sector can turn out to be in the black, then national carriers are more likely to suffer from rising fuel prices, as is already happening with Aeroflot, whose shares fell by 0.98% in the market.