Iran’s threats good for Russia investors, but only in short term

With Brent crude passing the $120bbl mark off the latest Iranian threats to global oil output, other producers such as Russia may only gain short-term benefit, warns East Capital’s Aivaras Abromavicius.

Responding to questions put by InvestmentEurope about the possible effects on the Russian and broader CEE markets from latest actions by Iran in limiting oil exports, Abromavicius said that an oil price rise was far from being a one-way bet on benefits for Russia – which goes to the polls to elect a new president in a few weeks’ time.

“[The] Oil price just crossed $120/bbl for Brent and is heading higher partially due to increased liquidity globally, partially because of the geopolitical issue,” he said.

“Russia would benefit from higher oil prices in the short term but no one, even oil producing countries would likely benefit long term. Too high oil prices would eventually negatively affect global growth and demand would fall, resulting in increased volatility for the price of the commodity itself. At higher prices, alternative sources of energy are also becoming increasingly competitive versus the oil itself.”

“[And] Turkey, [the] majority of whose current account deficit is oil and gas, would fare negatively if prices for energy continued to move higher.”

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