A helicopter crash in Iran has resulted in the deaths of the Iranian President Raisi and his hard-line foreign minister, potentially affecting oil markets if it produces a change in government policies. New elections within 50 days could lead to domestic turmoil and political changes, although the Ayatollah Khameini still holds significant power. The economy continues to struggle due to mismanagement and sanctions, with the Revolutionary Guards playing a major role in blocking needed reforms. The sinking rial and high inflation rates have fueled discontent among the population.
Despite the likelihood of no significant change in Iran’s anti-U.S., anti-Israel stance, recent events suggest a desire to reduce tensions. Moderating attacks on U.S. forces in the region and not responding to a recent Israeli attack indicate a possible willingness to ease foreign policy. If the conflict in Gaza de-escalates, Iran may have more room to maneuver and potentially engage with the West. A new agreement on its nuclear program could lead to increased oil exports, easing economic pressure on the regime.
The current leadership, including the likely new president, is unlikely to be moderate due to conservative political power. However, public pressure may push them to ease social restrictions and seek to reduce sanctions. While past protests have been repressed, increasing pressure on the government could lead to more unrest. Sham elections could lead to public apathy or increased anger towards the regime, potentially prompting reform as a means of survival.
Short-term unrest could disrupt oil supplies, especially if labor action occurs in the oil fields. Major demonstrations and unrest could increase the security premium on oil, out of fear of supply disruptions or regime-instigated violence. In the long-term, an optimistic scenario could see the regime becoming more responsive to public demands for economic growth and better relations with the West. However, the regime has historically resisted such changes, leaving the long-term outcome uncertain. Overall, the impact on oil prices is short-term bullish but long-term bearish, with the timing of potential changes being the biggest question.
