Despite the overwhelming efforts by European powers to persuade the US President, not to pull-out of the Iranian Nuclear deal, President Trump announced his withdrawal from the deal on Tuesday. Oil had rallied 13.1%, hitting a three year high of $75.9/b, in the run-up to the Tuesday announcement. With fresh US sanction on Iran, Brent crude price is clearly set to cross the $80/b mark soon amid supply constraints and rising demand.
While the commitment by the EU and other key stakeholders to keep to their end of the deal may limit the negative impact of Trump’s action, Iran and large European businesses, hoping to increase investment in the middle-east country, are the likely losers. Conversely, Nigeria and other OPEC members, happy to see oil prices above $80/b, will benefit the most.
With sustained dependence on oil export, an additional uptick in oil prices will strengthen Nigeria’s external balance, boost government revenue and improve the short/medium term macro outlook of the economy. Broadly, this is positive for naira assets, especially the currency and debt markets as increased oil earnings improve Nigeria’s risk profile, support further accretion in FXreserves and keep the yield environment favorable for corporate debt issuers. However, a comparable ptick in the equities space remains unlikely due to uncertainties in the political arena.