March 2014: Reading Rouhani

OMFIF ranges widely over the shifting sands of world energy this month. Two big themes are at the forefront of attention: developments in Iran following the entry of a reformist president, Hassan Rouhani, and the stand-off between Ukraine and Russia. The positive effects, both geopolitical and from the viewpoint of energy markets, of the rapprochement between Iran and the west seem balanced by the repercussions of the worsening of US-Russian relations over the Ukrainian crisis. So far, world financial markets have reacted to the first process with optimism and opportunism, demonstrated by the stream of hopeful visitors to Tehran from deal-hunting financiers and business enterprises from east and west. Undue pessimism over the latter circumstances has been shrugged aside, but has been on the ascendancy in recent days – and the potential repercussions of the Crimea referendum on 16 March may well act as a further dampener. The positive start to the year for equity markets in the US and Europe, bringing valuations once again to levels that seem far ahead of trends in the real economy, could quickly be thrown off course.

Dwelling on a tide of influences on international energy, from China and the US through to the Middle East and North Africa, Nick Butler believes that oil and gas prices are headed downwards – a trend that Saudi Arabia as the key producer will be unable to avert. Vicky Pryce, too, says that the American shale gas boom will change the shape of energy markets. Fabio Scacciavillani of the Oman Investment Fund disagrees, playing down talk of a shale gas bonanza in the US. He says the promise of American energy self-sufficiency is exaggerated. Winston Moore looks at the impact of an expected increase in international investment in the Iranian oil sector on expenditures in Mexico and other parts of Latin American, making unfavourable comparisons with the state oil concern Pemex. Efraim Chalamish surveys the effects of increasing disputes over energy in developing countries.

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