Reimposing Iran Oil Sanctions May Spell Trouble for Turkish Lira

(Bloomberg) -- Turkey’s currency is already having a rough year, but if the U.S. reimposes sanctions on Iranian oil exports it could fall even further.

That’s because the lira, along with the yen and the Swiss franc, is more at risk of declining than most major peers should Iranian shipments be curtailed, according to an analysis from Danske Bank’s Jens Pedersen that maps different currencies’ sensitivity to oil-price moves. The Canadian dollar, Norwegian krone and ruble are among those seen as most likely to benefit.

Crude oil is trading near the highest since 2014 in advance of the May 12 expiration of the waiver on U.S. sanctions on Iran. President Donald Trump said in a tweet Monday that he’ll announce his decision on Tuesday on whether the U.S. will remain in the Iran nuclear accord. The lira has already lost 10 percent this year against the euro amid concern that monetary policy is too loose to anchor inflation.

Reimposing Iran Oil Sanctions May Spell Trouble for Turkish Lira

The report, released Monday, used the euro as its base. It found that the euro-lira, euro-yen and euro-franc pairs have upside risk should the price of Brent oil rise to $80 to $85 per barrel in a scenario where Iranian oil sales are hampered, from about $75 now.

Traders focusing on the euro-dollar rate need not be worried, according to the report, as the pair “maintains a minuscule sensitivity to oil, which means that an oil spike should not be able to derail the current negative momentum in the cross.”

©2018 Bloomberg L.P.