As a major presence in the Middle East, the future of Iran has the power to impact the United States and other countries around the world. In January 2016, an attack on the Saudi embassy in Iran led to Saudi Arabia cutting diplomatic ties with Iran. January 2016 also saw the removal of economic sanctions and oil embargoes from Iran, which means that Iran may trade oil with the remainder of the world and that foreign bank accounts held by Iranians are now unfrozen and the funds held within may be spent or invested. Though economic conditions may improve in 2016, Iran is experiencing high inflation at 16.2% coupled with high unemployment at 10.4%. The newly available funds will likely aid the Iranian economy, as will oil income.
Saudi Arabia appears to be employing a strategy of pumping more oil to reduce Iran's oil prices. This may have the short-term effect of reducing gas prices for now, but if wells go dry, that will spell higher prices in the future. If a war or another conflict emerges in the Middle East, the oil supply will decrease and gas prices will rise. News of conflict typically causes a temporary increase in prices. Gas prices are first and foremost a reflection of supply and demand, even when entities like the Organization of the Petroleum Exporting Countries (OPEC) attempt to engage in price-setting activities. Oil prices hit an 11-year low in January 2016. With a new seller of oil products entering the global market, gas prices in the United States and elsewhere may drop even further at the pump.
Increased Oil Supply
As Saudi Arabia pumps more oil, the price of Iranian oil for sale decreases. Iran is not in a position to sell its oil for a deep discount, because the country needs the revenue in light of the recently lifted embargo. OPEC's attempts to set oil prices have failed in light of Saudi Arabia's high, uninterrupted production and now Iran's contribution to world oil supplies. Already oversupplied, an increase in world oil reserves from the production and sale of crude oil products in Iran will further reduce the price of gasoline in 2016. An increase in world oil supply will have the effect of reducing the price of oil products, assuming there are no sudden changes in demand or another oil producer reduces its oil supply. If political friction increases between Saudi Arabia and Iran to the point that transportation of oil supplies is disrupted, then oil prices could increase in response, but the two countries may not be at that point. The more immediate effect of the tension between the two countries is volatile oil-trading activity if there is further conflict between Middle Eastern countries.
Investment Dollars from Iran
President Barack Obama broke from the tradition of four presidents preceding him when he agreed to release Iranian assets. Beginning in the 1970s and expanding in the early 2000s, the sanctions against Iran barred Iranians with foreign bank accounts in the United States and United Kingdom from accessing funds. Since economic sanctions were lifted, Iranians now have access to an estimated $30 billion to $100 billion of assets that had been frozen worldwide. Lifting the sanctions will allow Iran’s 32,000 high net worth individuals (HNWIs) to begin spending. Areas in the United States with high Iranian populations, such as Los Angeles, will likely benefit from new cash flows, as well as the residential industry in the United Kingdom. Luxury producers around the world will also benefit from the lifting of economic sanctions. Gross domestic product (GDP) is expected to increase by 5% in 2016 due to the lifting of sanctions. Iran's gains from the funds will be far-reaching, helping to build up infrastructure in Iran and providing additional funds to global economies.