In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” this column stated at the turn of the year. It was a forecasting flourish possibly fuelled by one Christmas brandy too many. With just four months of 2016 to go, though, I’m sticking to my Yuletide view.
Attempting to predict the oil price is crazy. Yet no decent economist can afford not to. The world economy still revolves around oil – used in everything from transport and electricity generation to the production of plastics, synthetics and so much else. And for all the breathless talk about renewables, and the grim inevitability of growing nuclear dependence, we remain addicted to oil.
“In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” wrote this columnist in early January. I’m sticking to that view. Having sunk to a 13-year low in mid-February, crude prices have since risen by more than 80pc – and last week broke through $50 for the first time since last November.
This significant oil price rise is happening, though, despite and not because of the once all-powerful Opec exporters’ cartel. But that’s not stopping Opec from trying to reestablish itself as the supply-limiting force it once was.
Forecasting the oil price, as I’ve often said, is a mug’s game. But the cost of the black stuff is so important – central not just to transport and electricity generation, but also agriculture, the production of plastics and synthetics and so much else – that any self-respecting economist simply must take a view.
“In the absence of a major financial meltdown, oil will end 2016 north of $60 a barrel,” this column asserted at the turn of the year, possibly after one Christmas brandy too many. Despite yuletide excess, I’m sticking to that view.
Last week oil jumped above $44 – it’s highest level so far in 2016. Having sunk to a 12-year low in mid-February, crude prices have since risen 40pc. The Opec oil exporters’ cartel is now trying to forge an output-limiting agreement, ending a two-year supply glut and pushing prices further up. So, all eyes are on today’s Opec summit in Doha.
“Iran is one of the last remaining places, short of Mars and the Moon, where there is significant opportunity”. So says Sir Martin Sorrell, CEO of the global advertising giant WPP and one of the world’s most widely-followed analysts.
I agree that Iran – a country with a vast natural resource endowment and home to 81m people, many of them highly-educated – should rank among the world’s most exciting emerging markets.
In early July, the leaders of Brazil, Russia, India, China and South Africa assembled in Ufa, around 700 miles east of Moscow, for the seventh annual Brics summit.
Overshadowed by Europe’s currency imbroglio and China’s stock market nosedive – along with the usual plethora of summer sporting events – this diplomatic gathering in the Bashkirian capital deserved far more media attention than it got.
Long-standing international sanctions against Iran could be dropped. That’s pretty astonishing given that, in the eyes of many Westerners, the country remains a pariah. The Lausanne framework agreement, which emerged after fraught negotiations in early April, means Iran – easily the world’s most significant isolated nation – could be returning to the global stage.
Even under sanctions, Iran’s $450bn economy is already among the top 25 largest on earth. Home to 81m people, it could soon get a lot bigger still. Since Hassan Rouhani became President in mid-2013, there’s been talk not only of Western rapprochement, but of Iran as an investment destination. The image Rouhani conveys – a moderate cleric, with a doctorate in law from a British university – contrasts sharply with that of his predecessor Mahmoud Ahmedinejad, a firebrand religious hardliner.
Iran remains a pariah state. In the eyes of many Westerners, not least those sitting in the mighty US Congress, there are few more dangerous, untrustworthy states on Earth. It’s incredible, then, that in the wake of an historic framework agreement, which emerged earlier this month after fraught negotiations in Lausanne, long-standing international sanctions against Iran could soon be dropped.
Even in the midst of a general election campaign, to say nothing of the slow-motion-car-crash negotiations that may or may not keep Greece (for now) in the eurozone, this Iran deal deserved more headlines. A country that should rank as one of the truly significant global economies, bigger than South Africa and home to 81m people, could soon return to the world stage.
“Hassan Rouhani – a man we can do business with?” That was the question on the lips of many of the global movers and shakers gathered at Davos last week. Amidst the usual vapid spiel – this year’s gems included “reshaping the world” and “the deflation ogre” – some genuinely interesting geo-politics punched through at the annual Swiss gabfest.
For the first time in a decade, the leader of Iran was there. What’s more, he was relaxed, laughing and talking incessantly about his “active foreign policy” to achieve his “economic goals”. Such economic ambition is overdue. Last year, the Iranian economy shrank by 5.8pc and is now enduring its worst financial crisis for at least two decades, partly due to sanctions linked to Iran’s highly controversial nuclear programme.
Since last weekend’s eurozone “grand summit”, the headlines have been positive and, in the official photos anyway, the main players appear to be smiling. As such, the global equity rally goes on. Behind the rictus grins, though, the gloves remain off, the rhetorical daggers still drawn. Having launched the biggest sovereign debt restructuring in history, Athens now faces the Herculean task of persuading holders of Greek bonds to accept a “voluntary” hair-cut.
Creditors are being asked to swap their bonds for a combination of new short-term instruments, issued by the European Financial Stability Facility, and longer-term Greek government debt. If half of them agree to take the hit then, under “collective action clauses” approved by the Greek Parliament, the deal could be forced on all bond-holders.