Lifting of Iran Sanctions Sees Oil Shares in the Gulf Drop Sharply
Exchanges in the Gulf States are dominated by energy companies that are apprehensive that oil will drop further from $29, a 12-year low, when Iran resumes production following the lifting of economic sanctions by the US and other western countries.
Iran has announced that it will produce as much as 500,000 extra barrels of crude oil.
On Saturday, inspectors confirmed that Iran had taken the necessary steps to put a limit on its nuclear programme. This was followed by a lifting of economic sanctions that had been imposed for close to 40 years.
On the first day of trading in the Muslim week, investors reacted promptly to the news of the lifting of the sanctions, with the Saudi Tadawul All Share Index, the largest exchange in the region, dropping 5,520 points, its lowest level since 2011.
In all the other stock exchanges in the Gulf region, share prices dropped as investors anticipate higher oil production in an already over-saturated market.
According to the oil minister in Saudi Arabia, Ali al-Naimi, it would take quite a bit of time to make the global oil market more stable but he added that states in the region remained optimistic.
Analysts say that it is quite surprising that markets have reacted this way when Iran had already made promises last July that it would produce 500,000 more barrels of crude each day when sanctions were lifted as part of the Vienna agreement.
On Sunday, Iranian President Hassan Rouhani said that the deal to lift sanctions was a turning point for the country’s economy.
According to rough estimates, Iranian assets costing up to $100bn will be unlocked following the deal.
The lifting of sanctions further allows Iran to leverage the world financial system to reignite trade.