A helicopter crash in Iran has resulted in the deaths of the Iranian President Raisi and his hard-line foreign minister, potentially leading to changes in the government’s policies. This incident could impact oil markets as new elections are set to take place within 50 days, as required by Iranian law. The Iranian economy has been struggling due to mismanagement and sanctions, with the Revolutionary Guards playing a significant role in blocking reforms. The sinking rial and high inflation rates have fueled discontent among the population.
Despite the leadership change, it is unlikely that there will be a significant shift in Iran’s anti-U.S., anti-Israeli stance, and support for proxy groups in the region. However, recent actions like urging proxy groups to moderate their attacks and not responding to an Israeli attack may indicate a desire to reduce tensions. As the conflict in Gaza begins to de-escalate, there may be room for Iran to maneuver and potentially moderate its foreign policy, leading to possible openings to the West and a new agreement on its nuclear program.
The current leadership and the potential new president are not expected to be moderates, but increasing public pressure could force them to consider easing social restrictions and reducing sanctions. Despite past protests being mostly silenced through repression, the growing pressure on the government could lead to more significant unrest and calls for reform. This situation could result in disruptions in oil supplies, especially if labor actions occur in oil fields, increasing the security premium on oil as fears of supply disruptions or regime-instigated violence rise.
Looking ahead, there is a possibility of the Iranian regime becoming more responsive to public demands, focusing on economic growth, and improving relations with the West in the long term. While the regime has historically avoided such paths, the current situation may lead to unforeseen changes in the future. In conclusion, the impact on oil prices is projected to be short-term bullish and long-term bearish, with uncertainty surrounding when significant changes may occur.
