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Saudi-Iran spat keeps local, foreign investors on toes

BUSINESS
By Morris Aron | January 7th 2016

International investors have their eyes cautiously traded on the Saudi-Iran conflict with fears that it could boil over into oil and the stock market crunch.

The market jitters has seen see-saw price movements for both oil and stocks across the globe.

Local experts say the current relationship row is still in its very early stages to warrant any clear prediction on the effect on pump prices and the stock market at the Nairobi Securities Exchange.

“The spat presents a geo-political risk on oil and subsequently stock prices as the two are the biggest oil producers in the world,” said Johnson Nderi, corporate finance and advisory at ABC Capital.

“It is however too early to say to what extent the diplomatic row will affect oil and even stock prices across the globe.”

Similar sentiments have been echoed across the globe with experts arguing that unless the current geopolitical events affect the direct supply of oil, such as by impeding a major pipeline, port or waterway, oil prices shouldn’t be affected.

“Iran has all the interest in the world right now to actually move the conflict between Iran and Saudi Arabia into the domestic arena in Saudi Arabia,” said Brenda Shaffer, senior global fellow at the Atlantic Council’s Global Energy Centre.

“If that happens... we could still see a huge implication for the oil price.”

But while the forecasts continue, Saudi Aramco raised its February price for its Arab Light grade, a measure of units and grade of oil, for Asian customers by $0.60 a barrel as opposed to a discount of $0.80 given in January to the Oman/Dubai average.

The company has kept its Arab Light official selling price to the US unchanged from the previous month at a premium of $0.15 a barrel to the Argus Sour Crude Index while the Northwest Europe price guide was set at a discount of $4.85 a barrel to the Brent Weighted Average, down $0.60 from the previous month.

Generally, so far oil prices have fallen even as tensions flare in the Middle East, the latest twist in a market overwhelmed by crude supplies.

In the last two days of volatile trading, oil futures at first soared on news of a diplomatic rift between Saudi Arabia and Iran that was sparked by Saudi Arabia’s execution of a Shiite cleric. But the rally fizzled on fresh signs that the supply glut that pushed prices down more than 30 per cent last year is growing.

Stock traders have largely remained cautious as the market reacts to the recent manufacturing statistics from China which showed an above average economic slowdown. Kenya and East Africa fully depend on the Middle East for oil imports.

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