Market commentary: Iran reaches historic agreement, Greece struggles to approve bailout deal

Yesterday the Islamic Republic of Iran sealed a historical agreement with the six world powers by reaching a deal aimed at curbing Iran’s nuclear program in exchange for a reduction of international sanctions and the lift of an embargo that has crippled the Islamic country’s economy for over a decade.

The positive news arrived after two years of tough negotiations initiated by President Barack Obama in 2013 with the first direct phone call to Iranian President Hassan Rouhani after years of diplomatic isolation.

The details of the deal have not been made public yet; however there are indications that the agreement calls for Iran to dismantle most of its nuclear facilities, while immediately stopping any further research and development aimed at providing the Islamic country with effective nuclear energy production and possibly the capability to create nuclear weapons.

In return, the international community, represented at the negotiations by the permanent countries chairing the United Nation Council plus Germany, have agreed to gradually lift an embargo imposed on Iran almost 12 years ago, while also beginning to release billion in frozen oil proceeds and funds locked outside the Islamic Republic.

Although the announcement of an official deal is generally a positive news for the markets as it is likely to contribute to reduce geopolitical risk, the agreement still has to pass the review of the US Congress, which has the power to block the deal and bring all parties back at the negations’ table.

The lifting of sanctions is believed to have two immediate consequences: additional supply pressure on an already oversupplied oil market, and the opening of the Iranian economy, giving international companies access to an almost untapped 77 million people market.

Crude oil is, at least in the immediate future, the big loser of this deal, as experts expects Iran to bring online new production capacity that has been so far locked down by the embargo imposed on the Islamic Republic.

Brent Crude Oil, the international benchmark for the black commodity, fell 2.15% this morning in London, adding to a decline started last week, while most European oil companies opened lower today, with BP losing as much as 0.80% before partially recovering throughout the morning session.

Total SA, the largest French oil firm, also opened lower on the news, while Eni Spa, the Italy’s national oil producer, dropped over 1% in Milan.

In Greece, Prime Minister Alexis Tsipras is now under fire from its own party after accepting a bailout deal that imposes even stricter reforms and budget cuts that earlier proposals. Although a formal agreement was reached yesterday between Greece and its creditors, the Greek Parliament has time until tomorrow to pass key reforms before the new funds are released by the IMF and the European Union.

After rallying over the past two trading sessions, European equities are modestly negative today, with investors taking some profits off the table while awaiting news from Greece. Equity futures also point to a weak US opening, after Asian markets closed mostly unchanged early this morning.

This article was issued by Paolo Zonno, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.