The US-Iran standoff may contribute to strengthening of the Russian currency, experts polled by TASS suggest. Nevertheless, the influence of the situation on emerging markets and global economy in general remains controversial and dependent on various scenarios of events unfolding in the future.
The US launched a strike on Baghdad’s airport on January 3 killing Iranian IRGC-Quds Force commander Qassem Soleiman. Early on January 8, it was reported that Iran retaliated by launching missile strikes on US facilities in Iraq.
The escalation of the US-Iran conflict pushed the price of oil up - due to potential US’ strikes on Iran’s oil facilities, as well as the price of gold - due to mounting geopolitical risks. Experts interviewed by TASS believe that oil prices may climb above $70 per barrel, which in its turn may become the reason of the Russian currency's strengthening.
Experts’ outlook on Russian market
BCS Premier Senior Analyst Sergey Suverov considers it possible that the growth of the oil price will support the Russian ruble. However, further development of the conflict is fraught with investors withdrawing from risky assets.
"The influence on the ruble’s exchange rate is controversial. On the one hand, the dollar as the main global currency rises amid geopolitical uncertainty, but on the other hand, the growth of the oil price fuels the ruble’s strengthening. The conflict’s development and its escalation jeopardize stock markets and is fraught with investors’ withdrawing from risky assets, particularly the emerging markets," he explained.
The Middle Eastern escalation scenario may put pressure on oil supply, send commodities prices higher and strengthen the ruble’s exchange rate in the short-term, Vasilisa Baranova, an analyst with the ACRA analytical credit rating agency, suggests. However, that effect is likely to be moderate due to regular forex purchases by the Russian Finance Ministry, which reduce the dependency of the ruble’s exchange rate on oil price fluctuations, she added.
Baranova also noted that investors’ shift to higher-quality assets with concurrent decline of demand for riskier assets of developing markets, including the ruble, will weaken it. In its base-case scenario, ACRA expects the average annual exchange rate of the ruble at around 66-67 rubles per dollar in 2020.
Finam’s Sergei Drozdov suggests that the ruble hardly responds to the oil price hike or the Middle-Eastern conflict, whereas the Russian stocks continue hitting all-time highs, regarding both the MOEX and RTS indices.
"Such surges will not affect the Russian economy overall. Oil (prices) hikes will be positive for Russia’s budget, though they will be quick and minor," he explained. The expert assumes that it is difficult so far to project in which direction the ruble’s exchange rate will move against the dollar. However, the (ruble’s) exchange rate may rise to 63-64 rubles in case of negative developments on stock markets, Drozdov said, adding though that he does not rule out that the Russian currency will strengthen further to 60-61 rubles due to the current consolidation.
Conflict’s influence on global economy
"The conflict will hardly have any influence on the global economy. At this stage, the incident looks local, unlikely to develop negatively in the future. Even western experts say that it will most likely shift to the diplomatic level. Moreover, 2020 is the year of the US election and US President Donald Trump is unlikely to rush into a war with Iran - far too big risks," Drozdov said.
On the other hand, the worsening of the US’ relations with Iran is still unsurprising, he added. "US President needed to distract attention from impeachment. America has always traditionally dodged domestic problems through creating trouble spots somewhere globally - most recently in the Middle East. Previously it happened during the 2008 crisis as the US escalated relations with Iraq and Libya to distract attention from its economy," he noted.
The expert added that in case of further escalation of the conflict the oil price might breach the $71 per barrel mark, "which will be gradually neutralized similar to the situation with drones attacking infrastructure of Saudi Arabia (in September 2019 - TASS)."
Meanwhile, BCS’ Sergey Suverov expects the possibility of oil prices rising above $70 per barrel to trigger global inflation and bring international economy closer to recession thus, boosting the stagflation risks in the US.
Senior Manager at the NCR Rating Agency Alexander Proklov shares the view that the key question today is how far the US-Iran conflict will go and how long it will last. Nevertheless, the expert does not expect the short-term crisis in the Middle East to have a major effect on the global economy.