A great point by Credit Agricole on the petrodollar diversification
As we know the FX market is made up of many many parts. It's not just bigwig comments or stop runs or people pushing the market around that moves prices. The FX market is a fully functioning business tool too.
Credit Agricole highlight that we could be seeing the return of petrodollar recycling and that Iran could be a major player in that
Many oil producing countries diversify their profits from oil sales into other currencies as part of normal currency reserve management.
Iran has around 13.1% of OPEC's 66% of global oil reserves, and they registered earnings of $53.6bn from exports, that potentially could mean a lot of changing up of those bucks into other currencies as their oil comes back to market
That means flows into most of the major currencies vs USD, like the euro
What's the caveat?
The oil price plays a big role in the levels of those oil profits and with a lot of countries close to or under the breakeven/profit watermark, it means limited profits to diversify. Credit Agricole note that Iran has one of the highest breakeven prices, meaning that profits will likely go on funding fiscal deficits.
Unfortunately this isn't something we can plot on a calendar. It is something that we need to bear in mind if the price of oil starts rising, which increases profits in oil producing countries. It's likely that Iran will just be happy to make sales after the sanctions and gain back some of that lost income, so worrying about FX reserves won't be high up on the list just yet
It's another great insight into what makes up the huge FX market and is brought to us by our partners EFX News. For more great analysis you can grab a free 30 day trial
