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AEP: Saudi financial crisis 'could leave oil at $25' as contractors face being paid in IOUs
Telegraph UK

The country’s remaining reserves of $582bn are in theory ample – if they are really liquid – but that is not the immediate issue. The problem for the Saudi central bank (SAMA) is that reserve depletion automatically tightens monetary policy.

Bank deposits are contracting. So is the M2 money supply. Domestic bond sales do not help because they crowd out Saudi Arabia’s wafer-thin capital markets and squeeze liquidity. Riyadh now plans a global bond issue.

While crude prices have rallied 80pc to almost $50 a barrel since mid-February, this has not yet been enough to ease Saudi Arabia’s financial crunch.

The rebound in crude is increasingly fragile in any case as tough talk from the US Federal Reserve sends the dollar soaring, and Canada prepares to restore 1.2m barrels a day (b/d) of lost output. “We feel that markets have moved too high, too far, too soon. We still face a large inventory overhang and supply outages are reversible,” said BNP Paribas.

Total chief Patrick Pouyanne told the French senate last week that prices could deflate as fast as they rose. “The market won’t come back into balance until the end of the year,” he said.

Mr Pouyanne said the collapse in annual oil and gas investment to $400bn – from $700bn in 2014 – would lead to a global shortage of 5m barrels by 2020 and another wild spike in prices, but first the glut has to be cleared.

The oil rally is now at a make-or-break juncture. A growing number of oil traders warn that speculative purchases of “paper barrels” by hedge funds have decoupled from fundamentals. There is usually a seasonal slide in demand over the late summer.

Adam Longson, from Morgan Stanley, said “quant” funds have taken out big positions on Brent crude. "If trends reverse, it could be a catalyst for liquidation," he warned.

Mr Longson said supply outages – chiefly in Nigeria and Canada – have held back 2m b/d and temporarily balanced the market, but this may not last. Canada should be back on stream by June.

US inventories are still hovering at record levels. Data from the US Energy Department showed a rise of 1.31 million barrels in the week to May 13. “The supply glut seems persistent. Oil could well fall to a new low for the year,” said Ben Combes from Llewellyn Consulting.

Eventually the next cyclical oil spike will come to the rescue. The question is whether the Saudis can batten down the hatches and make it through the financial storm in a very leaky ship.

EU, U.S. failing to fully comply with commitments made under nuclear deal, says Iran central banker
Tehran Times

The governor of Iran’s central bank has said obstacles stopping Iranian banks from rejoining the global financial system show that the U.S. and the EU are failing to fully comply with their commitments under the landmark nuclear deal.

Four months after the lifting of sanctions against Iran, big European banks remain reluctant to handle Iranian payments despite recent efforts by the U.S. secretary of state, John Kerry, to reassure them that dealing with Tehran is now permissible.

Valiollah Seif told the Guardian that western governments need to translate their words into action, playing a more active role in making sure that banks are confident they will not be punished for reestablishing ties with his country.

“Some movement and western officials have made some positive pronouncements, but banks need tangible reassurances that they would be immune from baseless allegations [of sanctions breaches],” he said on Thursday on the sidelines of the Euromoney Iran Conference in London.

The U.S., the UK, France and Germany said jointly on Thursday that they “will not stand in the way of permitted business activity with Iran, and we will not stand in the way of international firms or financial institutions engaging with Iran as long as they follow all applicable laws”.

Officials from the U.S. office of foreign assets control (OFAC) are travelling to Europe soon to give further clarifications to the banks. But such pleas have so far failed as banks complain about the threat posed by continuing U.S. sanctions.

“Banks need enough reassurances, even if this means rewriting guidelines or revising regulations, or giving banks written guarantees,” Seif said.

“Until our western interlocutors have fully fulfilled their obligations under the nuclear deal, we won’t see a real change in our banking relations.”

UK firms such as Lloyds Banking Group and Royal Bank of Scotland (RBS) have refused to serve as clearing banks for their Iranian counterparts, preventing them from reopening their London branches, the governor said.

“Our first expectation from Britain is to provide assistance so that our Iranian banks can start operating in London again,” he said.

The British government holds big stakes in both RBS and Lloyds. RBS declined to comment on the issue but a spokesman from Lloyds said: “We are not aware of any such issues arising. We do not restrict payments where they are allowed by the legal and regulatory frameworks under which we operate.”

Seif said Iran was unable to repay its debts to some of its foreign suppliers during the sanctions years because it did not have access to any payments channel, even though it had enough money.

Moreover, restriction on Iran’s access to the dollar system has created serious issues, Seif said, even in cases where no dollars are exchanged.

“If we want to change Omani rials to euros, we don’t need dollars, but the system is designed in away that it has to be changed to dollars first, then euros. They should find a way for us to resolve this issue.”

Seif said Iran’s economic situation has improved dramatically since the coming to power of the moderate president Hassan Rouhani in 2013.

“You can’t compare today’s situation to three years ago,” he said. “Three years ago Iran was experiencing a volatile economic situation, rising inflation, unstable market and fluctuations in foreign currencies on daily basis, but now the government has successfully curbed the inflation and brought stability to the currency market.”

Seif added: “Falling oil prices shocked oil-dependent countries – even those which were not affected by sanctions, like Iran – but we felt no shock in our economy thanks to good management and good planning of our financial policies.”

David Lipton, a senior official with the IMF who visited Tehran recently, said, “In recent years, the authorities have made considerable progress in restoring macroeconomic stability under difficult circumstances.”

“Inflation has declined from 45% in 2013 to around 8% recently, the foreign exchange market has stabilized, and some key reforms have been implemented.”

(Source: The Guardian)

Iran parliament seeks damages for US support of Saddam
Al Monitor

After the US Supreme Court upheld legislation that allows American courts to confiscate Iranian assets in the United States, the Iranian parliament passed a bill that forces the administration to seek compensation from the United States for US actions taken against Iran in the past 63 years.

In an open session May 15, the parliament passed the double emergency bill with 181 votes in favor, six votes opposed and eight abstentions. According to Mehr News Agency, some members of parliament chanted "Death to America" during the vote.

Ibrahim Karkhaneh, the head of Iranian parliament's Nuclear Committee, presented the bill and said that the court cases against Iran in the United States were examples of "unjust actions to seize property and assets of the Islamic Republic of Iran." Blaming officials from President Hassan Rouhani’s administration, Karkhaneh added, "The Islamic Republic of Iran until now has not taken significant action against these unjust actions, and day by day these sentences in America are increasing."

According to the bill, the US actions for which Iran would seek compensation are: US involvement in the 1953 coup that overthrew Prime Minister Mohammad Mossadegh and reinstalled Mohammad Reza Pahlavi as king of Iran; a coup attempt known as the Nojeh coup in 1980 shortly after the Islamic Republic was established; US support for Iraqi President Saddam Hussein during the Iran-Iraq War, including the 223,000 victims and 600,000 injured during that war; the deaths of 17,000 Iranian citizens at the hands of US-backed terror groups; spying against Iran; confiscating Iranian assets; and US support for Israel.

The bill requires the administration to take "appropriate legal action" against the US violation of state immunity and to take countermeasures against US assets in third countries. The bill requires the Foreign Ministry to present a report to parliament's National Security and Foreign Policy Commission every six months.

The bill is in response to an April ruling by the US Supreme Court that families of victims of the 1983 Beirut bombing of US Marine barracks and other bombings were entitled to compensation from $2 billion of Iranian funds in US banks. In 2012, the US Congress passed a bill allowing 1,000 families access to the funds after they had won a 2007 lawsuit against Iran in a US court. In March, a New York court also held Iran responsible for the Sept. 11 terrorist attacks, awarding the victims $10 billion.

In response to the US Supreme Court ruling on the Beirut attack and the New York court ruling regarding 9/11, Karkhaneh said, "After the nuclear deal, we see that the United States issues verdicts against Iran with baseless and false excuses." He called the rulings "a cooperation between the American Congress, the government and courts to steal Iranian property."

On May 16, a special working group formed at the order of Rouhani and headed by Minister of Economic Affairs and Finance Ali Teyebnia to "review the various dimensions of the robbery of Iranian property by the American government" issued a statement saying "America's judicial system violated the principle of state immunity." The statement blamed the administration of former President Mahmoud Ahmadinejad for not withdrawing the money from the United States "despite numerous warnings."

The statement continued that in consideration of the studies conducted by the group, and because the issue is not only a legal, political or banking question but also a question of national security, that further studies and decisions be made by the Rouhani administration and the Supreme National Security Council.
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