Iran deal is done, Bibi unhappy, Greek deal done, Greeks unhappy.

Reuters and other anonymous sources are reporting that an Iran deal has been done.

Greece yesterday, Iran today, what’s for tomorrow?

Bibi is neither pleased nor amused. A “pre-emptive” strike by Israel on Iran now becomes that much more difficult. Saudi Arabia will not be too pleased either. If sanctions are  lifted and also on weapons sales by Iran then we can see the pro-Iranian factions across the Middle East getting a boost. Which will probably constrain the advance of ISIS somewhat (and whatever the Saudis might say it is private Saudi money funding the barbarians). The pro-Iranian factions in Syria and Iraq will not only get a boost, they may also be more successful on the ground than the US-led coalition.

However Saudi Arabia will not be too unhappy about the additional downward pressure on oil prices. It will be sometime before Iran can ramp up production and during this time, low-cost Saudi oil will win further market share. Though Saudi Arabia failed to wipe out shale oil from the US, it is still increasing production and contributing further to the current oil glut. Saudi seems to be pursuing a revised strategy of keeping oil prices relatively low for 2 years or more in a war of attrition against the higher-cost oil producers. Market share is perceived as their prime weapon to try and get rid of the higher-cost producers. But I think they have miscalculated even here. A discontinued shale oil well can be restarted with very little investment and at very short notice. Production costs of shale oil have decreased sharply. Shale oil developers will just ramp their production up and down depending upon the prevailing oil price. And the larger shale oil wells can make money even with oil prices down at $40/ barrel.

It isn’t quite time for vacation yet in Europe (apart from Sweden which is closed for July). Some kind of framework resolution for the whole package of the 3rd bailout needs to be passed by the Greek parliament by tomorrow. Some resistance is showing today but the resolution will surely pass. Of course that says nothing about the Greek government’s implementation of all they have signed up for. Their track record of implementing what has been solemnly promised is not good. And if the reports today that the ECB will not be pumping liquidity willy-nilly into the Greek banks are correct, then the banking system will have to start issuing IOU’s to keep functioning while the negotiations are concluded. That will effectively be an alternative currency and it won’t be long before the IOU’s start trading at a different value to par. A currency by another name than “Euro” is still a Grexit for as long as that currency is used.

But an Iran back in the international fold is undoubtedly a good thing.

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