A barrage of new US sanctions will be coming into action against Iran on November 5, about a week from now.
These new US sanctions will target Iran’s shipping, shipbuilding, port operations, and most notably, its oil industry.
Ahead of these sanctions, a key Chinese bank, the Bank of Kunlun has already halted transactions with Iran.
This is going to also affect European equity markets. Iran’s economy is already in a crisis, the value of the Iranian rial, compared to the US dollar, is down 70% since May this year (source). The new sanctions will, unfortunately, only deepen this crisis, bringing Iran’s economy near a crash. Many major European corporations had chosen to invest in the Iranian economy in the last 3 years after an agreement was reached on the Iran nuclear deal framework. Companies of European powerhouses, such as the United Kingdom, France, and Germany, have invested in total hundreds of billions of dollars in total in the Iranian economy, which is being quickly eradicated by the actions of the Trump administration. The investor countries and the de facto allies of Iran are closely observing these new developments.
According to European Union officials, a special purpose vehicle (SPV) against these US sanctions will be ready by November 4.
“The SPV would enable bartering to avoid the need for cash transactions, while there would be no transparency over who was using the system.
In its most basic form, the SPV would ensure that Iranian oil bought by the EU, UK, Norway, and Switzerland could be paid for with European goods shipped back to Iran. Plans to allow non-European countries to utilize the SPV for trading with Iran are reportedly under consideration.” – source
If the Russian Federation and Saudi Arabia won’t step in and increase their oil production as they’ve done in the past – depending on the success of the European SPV, we are going to see higher oil prices on a global scale. Several major emerging economies depend on Iranian oil: 10% of South Korea’s oil imports come from Iran, 9% of India’s and 6% of Chinese.
Due to the recent Federal Reserve rate hike in the US, the US dollar got stronger subsequently making oil more expensive for oil importer countries and dollar-denominated debts harder to pay back. India, one of the main markets for Iranian oil who is even currently suffering for an economic recession and considerable (~10%) inflation this year. Because of these new sanctions – if the SPV fails, for India and for other countries oil imports will be more expensive and must be paid in the recently strengthened US dollar. Weapons system purchases of India may slow down and the country might just buy crucial weapons systems from Russia and/or the United States. The country has recently acquired new S-400 missile systems from the Russian Federation, consequently, the Trump administration in Washington is calling for sanctions while trying to get Indian officials to purchase US weapons. The US has issued a conditional waiver calling for India to reduce its military cooperation with the Russian Federation.
Because India and Russia are part of the Shanghai Military Organization it is very unlikely that India will do such a thing.
With looming sanctions against Iran pushing international uncertainty and with Hungary and Poland, two countries which are buying up gold, we should see gold prices rise in the next couple of weeks. According to Geral Celente at the Trends Journal, we might see gold rising to $1,300 from the current $1,242 price point from where it will be unlikely to stop before topping out at $2,000 for now.