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Financial Markets Drop as US-Iran Tensions Escalate

US-Iran tensions

Financial Markets Drop as US-Iran Tensions Escalate

Following Iran’s provocative and destabilizing activities over the past couple of weeks, including the downing of a US drone on the 20th of June which Iran has claimed responsibility for, and the attack on two oil tankers in the Gulf of Oman which Iran has denied any involvement in; the Trump administration has imposed sanctions against Ali Khamenei, the Supreme Leader of Iran as well as eight chief commanders of the IRGC (Islamic Revolutionary Guard Corps).

Announcing the sanctions in Washington, President Trump said: ‘in a few moments I’ll be signing an executive order imposing hard-hitting sanctions on the supreme leader of Iran and the office of the Supreme Leader of Iran. Today’s actions follow a series of aggressive behaviors by the Iranian regime in recent weeks including shooting down of US drones.’

As tensions boil over, could the price of crude oil increase further?

‘Iran who is ultimately responsible for the hostile conduct of the regime he’s respected within his country, his office oversees the regime’s most brutal instruments including the Islamic Revolutionary Guard Corps. Sanctions imposed through the executive order that I’m about to sign will deny the Supreme Leader, his office and those closely affiliated with him access to key financial resources and support.’

To watch the full announcement click here.

Some critics of the sanctions have suggested that the imposition of these sanctions on Iran are merely symbolic as opposed to being substantive as Iran have made it clear they will not negotiate further until the sanctions are removed.

US Secretary of the Treasury, Steven Mnuchin said: “The President was very clear If they want to come back to the negotiating table he’s ready if not they won’t. For people who say these are just symbolic that’s not the case at all. We’ve literally locked up tens and tens of billions of dollars. These sanctions will come along with additional entities where people are hiding money, so now these sanctions are highly effective.”

The Treasury Secretary went on further to say that the sanctions have proven to be potent in cutting funding to the IRGC. The US Treasury Department published a press release on June 24th, providing details on what impacts the new sanctions will have:

‘As a result of today’s action, all property and interests in property of these individuals that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.  OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons.’

‘In addition, persons that engage in certain transactions with the persons designated today may themselves be exposed to designation.  Furthermore, any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals designated today could be subject to U.S. correspondent account or payable-through sanctions.’  

Click here to read the full press release by the US Department of the Treasury.

President Trump has made it clear that he is open to negotiating with Iran, however, the sanctions could have the opposite effect especially if sanctions are imposed on Iran’s Foreign Affairs minister.

Mr. Majid Takht-Ravanchi, Ambassador of Iran to the United Nations, defended Iran’s legitimacy and justified its actions during a press conference on June 24th saying:

“Today the council is being briefed unilaterally by one party, the US who is abusing its position as the council’s permanent member to misguide this body in order to advance its anti-Iran policy. We have irrefutable information on the incident to provide to the council. According to our credible, detailed and precise technical information on the path, location, and points of intrusion, and impact of the US spy drone there is no doubt that when targeted the drone was flying over the Iranian territorial sea.”

“The US decision today, to impose more sanctions against Iran is yet another indication of continued US hostility against the Iranian people and their leaders, and that the US has no respect for international law and order.”  

To watch the entire statement click here.

Pressure has been building between Iran and the US following President Trump’s decision to drop out of the 2015 nuclear deal. The accumulation of that pressure has led to the attacks on the oil tankers in the Gulf of Oman and the destruction of the American surveillance drone. In retaliation, the Trump administration had authorized airstrikes on three military sites in Iran but consequently called them off at the last minute.  

President Trump calls off the planned airstrike on 3 Iranian military sites.

Following discussions between US allies, the US Special Representative for Iran, Brian Hook, advised that an international initiative was needed that would safeguard oil tankers in the Persian Gulf. The G20 Osaka summit, that is scheduled for this week, could provide a good opportunity for talks. Roughly 15 nations have been affected either indirectly or directly by the attack on the oil tankers, such as through insurance contracts.

On Monday 24th of June, President Trump tweeted: ‘China gets 91% of its Oil from the Straight, Japan 62%, & many other countries likewise. So why are we protecting the shipping lanes for other countries (many years) for zero compensation. All of these countries should be protecting their own ships on what has always been a dangerous journey. We don’t even need to be there in that the US has just become (by far) the largest producer of Energy in the world! The US request for Iran is very simple – No Nuclear Weapons and No Further Sponsoring of Terror!’

Iran officials made it clear that it will not approach the negotiating table unless the imposed sanctions are lifted. The US issued the sanctions in an attempt to coerce Iran into engaging in talks regarding security, nuclear weapons and countering the threat of terrorism. Sanctions on Iranian oil exports already exist.

Brian Hook is set to have discussions with delegates from the UK, France and Germany ahead of the G20 summit this week in Japan. What methods he will adopt to try and convince the EU members to follow in the footsteps of the US and withdraw from the 2015 nuclear deal, remain ambiguous.

European member states are pressing for the implementation of INSTEX (The Instrument in Support of Trade Exchanges), basically, it is a financial instrument that could facilitate trade between European businesses and Iran, whilst bypassing US sanctions.

Tehran has warned that if the EU does not ramp up its efforts to safeguard Iran from the sanctions imposed by the US it could raise its level of uranium reserves, effectively violating the 2015 nuclear agreement.

With political and military stress building in the Middle East, the price of oil soared on June 24th with Brent crude oil increasing by 0.6 percent to 65.58 dollars. Share prices in Asia were also weakened, however, the imposition of US sanctions as opposed to any US military strikes on Iran seemed to be reassurance for the financial markets.

Discussions are set to resume between China and the US at the G20 summit in Japan.

President Trump is also set to meet with President Xi at the G20 summit in Japan as they resume efforts to resolve the deadlock that has paused any progress on the US-China trade war and has hindered the growth of the global economy.  

The global stock markets have been resuscitated and refreshed by the forecast negotiations and talks between China and the US at the G20 Osaka summit, however, should these discussions breakdown as seen in the past then it could damage financial markets and investor sentiment.

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