FrontierView recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition highlighting rising US-Iran tensions following recent attacks on oil tankers.

Key Takeaways on US-Iran Tensions

In response to recent attacks on oil tankers in the Strait of Hormuz, the US will deploy an additional 1,000 troops to the Middle East “for defensive purposes,” as tensions rise in the region. The US has attributed the most recent attacks to Iran, though Iran has officially denied that it launched the attack. Iran threatened to raise uranium enrichment levels in ten days, while at the same time urging its nuclear deal partners to preserve the 2015 nuclear agreement. Iran has been suffering from the economic pressure put on the US since it withdrew from the nuclear plan and imposed economic sanctions. Oil exports fell further to a meager 0.4 million b/d in May.

Our View

Neither the US nor Iran want an outright war. But rising tensions and the growing strength of Iran hawks in the US administration increase the risk of events spiraling out of control. The increased US troop presence in the region may further exacerbate tensions. The US is likely to respond if any further attacks take place that threaten the flow of oil through the Strait of Hormuz, or if any US citizens are harmed by forces seemingly aligned with Iran.

Business Implications

Heightened uncertainty will threaten business and consumer confidence in the Middle East and North Africa region, which has largely remained unaffected. The Iranian riyal will continue to plummet, surpassing the current black market exchange rate of IRR156,500 to the US$ as oil revenues collapse and raise pressure on government finances. Oil supply flowing through the Strait of Hormuz from Saudi Arabia and the UAE could be negatively affected if tensions increase, with high levels of volatility around any future attacks.

Mansour El-Zahab, MENA Analyst

FrontierView clients: See our most recent MENA Market Review for further insights.