Pakistan Strategy: US-Iran conflict has teeth, (AKD Daily, Jan 07, 2020)
Pakistan Strategy: US-Iran conflict has teeth
- Reeling from the impact of heightened US Iran tensions, international markets across asset classes have responded, specifically international commodity markets, with crude spiking from fears of any protracted terseness hindering oil trade (particularly through the Strait of Hormuz) and safe haven assets such as Gold rising in prominence
- The role of other GCC countries and US ally Saudi Arabia seems to be one of calm and restrain, with the fluid situation in the region keeping crude prices edgy, while oil trade developments and risk of retaliatory actions from regional actors expected to filter through to risk premiums
- From the vantage of local E&Ps, higher crude benchmarks remain materially positive, with POL/OGDC/PPL raising annual EPS by PkR3.5/1.2/0.96/sh for a US$5/bbl move in average Crude assumptions, while sticking with our CY20 expectations (remaining tethered to a US$65/bbl band), awaiting any developments on supply disruptions to amend estimates
- Increasing oil prices are a double edged sword for local oil marketing companies where, prospects of hefty inventory gains brighten up on the back of increasing ex-refinery prices whereas increasing prices of retail fuels can throw a ‘spanner in the works’ for any improved demand outlook in CY20
- We await the role of major regional actors (Saudi Arabia, UAE), filtering through of US public sentiment towards any protracted standoff, Afghan policy and Iran’s retaliatory actions to finalize any fundamental assumptions, where commodity prices are expected to be reflective of slowing global industrial demand and continuing flight to safe haven plays (Gold, stable currencies)
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