Oil prices plunged on July 6 in the aftermath of the Greek referendum, which saw the Greek people hand Prime Minister Alexis Tsipras an overwhelming victory after they decisively rejected Europe’s bailout terms.
The “no” vote provides Tsipras with renewed momentum in negotiations with European creditors. Led by Germany, creditor nations had hoped that a “yes” vote would force the Greek government into further austerity measures in exchange for an extension of the bailout.
With Tsipras’ victory, Greece has drawn in a line in the sand with Europe. At the same time Greece’s position in Europe has now been plunged into murky waters. Citing the referendum result, several market watchers now say that a “Grexit” – Greece exiting the Eurozone – is quickly becoming a real possibility. The health of Greece’s banks is deteriorating, and “there is now a high likelihood of Greek exit from the euro, and possibly under chaotic circumstances,” JP Morgan Chase concluded.
The turn of events has taken the markets by surprise. Many thought Tsipras would have acceded to Europe’s terms on the bailout, and after he didn’t, many thought the Greek people would have voted “yes” on the package.
But the “no” vote has created turmoil across the globe, and oil prices have crashed to their lowest levels in months. The crisis is weighing on the euro, and there is a “flight to safety,” meaning the dollar is strengthening. With oil priced in dollars, a stronger dollar amid the Greek crisis is pushing down oil prices.
Moreover, this week could also see another momentous international incident that drags down oil prices. The P5+1 nations are zeroing in on a deal with Iran over its nuclear program. The talks have been extended and are nearing a July 7 deadline, but bit by bit a deal is beginning to emerge. As the markets begin to accept the fact that a deal is actually looking more likely by the day, the prospect of a removal of sanctions on Iran and new Iranian oil hitting the market is also weighing on oil prices.
WTI dipped below $55 per barrel and Brent fell below $60 per barrel for the first time since April.
This article originally appeared on OilPrice.com.
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