Iran and Saudi Arabia break diplomatic ties

After the execution of a prominent Shiite cleric on Saturday by Saudi Arabian officials, it seems that despite the passage of the landmark nuclear deal with the West, Iran’s Arab neighbors are cutting themselves off diplomatically and maybe, economically. After major protests in Tehran after the cleric Nemer al-Nemer’s execution, where crowds burned the Saudi embassy, the country has cut off diplomatic relations along with its close allies like Bahrain and Sudan, and Kuwait and the UAE have withdrawn their ambassadors. The issue is partly economic – with Iran re-entering global oil markets, Saudi Arabia will lose part of its substantial market share, coupled with increased output from Russia and the United States.

Saudi Arabia’s increased oil ouput from 9.6 million barrels of oil per day to 10.2 million barrels per day over the past year has ensured that Tehran’s return to oil markets won’t revitalize their economy overnight. In fact, despite Tehran’s projections for its budget, which predicted a stable price around $50-60 per barrel, they will instead have to make do with half of that.There are also increasing doubts that Tehran will be able to have Implementation Day scheduled before their midterm Parliamentary elections in February, mostly due to the fact that foreign investment does not seem as forthcoming as it once was during the height of the negotiations, considering that major oil companies have to cope with smaller budgets and the lingering threat of residual sanctions enforcement from OFAC or a related European entity.

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News Briefs:

  • The Guardian has an article on the environmental impact of the Kumtor gold mine, a mostly general article detailing the aid that the project has received in terms of financing by the EBRD wing of the World Bank, the country’s human rights record, and the environmental on the nearby towns. Kumtor’s remote location, along with allegations of abuse by both private and public officials, has made the local political situation very tense, and is the source of the bid by the Kyrgyz government to nationalize the mine, boxing out the developer, Canadian gold company Centerra Gold.
  • Kazakhstan’s Ministry of Economy has provided a preliminary list of the companies it will privatize between 2016-2020. Kazakhstan Gharysh Sapary, the Astana National Airport, as well as Kazakhstan Temir Zholy (the national railway), KazMunai oil and gas, Kazatomprom nuclear power company, and finally, the Air Astana airline will be offered as IPO’s. The full list is here (in Russian).
  • Seeking Alpha has an interesting article on Mongolia Growth Group, a diversified holding company with interests in Mongolia – and its crashing stock price. The company is still bullish on Mongolia’s prospects for rapid GDP growth, predicting double digit growth by the end of the decade and promising maximum returns once the commodity downcycle comes back up.
  • The ruble slid to its lowest level in a year this past Wednesday after Russians faced the prospect of a second successive year of recession. In total, the contraction of the Russian economy was 3.7%, despite Putin’s promises that the “peak of the crisis” has passed. Oil prices continue to decline steadily, and the ruble, still coupling its value with that the Brent crude benchmark price, tumbled to 73 on the dollar.
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