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NOK, SEK Shake as Iran Tension Threatens to Spark EU-US Trade War

NOK, SEK Shake as Iran Tension Threatens to Spark EU-US Trade War

Dimitri Zabelin, Analyst
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  • Economic docket in Sweden and Norway remains light this week
  • NOK, SEK eye Iran tensions and its impact on US-EU relations
  • Cross-Atlantic trade war remains a risk as global economy slows

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In Sweden and Norway, the economic docket remains relatively light, which leaves the Swedish Krona and Norwegian Krone exposed to counter-currency risk and at the mercy of developing fundamental themes. The biggest threat to Nordic FX this week – and likely beyond – is the escalating tension in Iran that threatens to widen the rift between the EU and US and potentially lead to a reignition of a cross-Atlantic trade war.


Less than two weeks ago, news broke that Iran was purifying uranium past its legal limits as outlined in the 2015 nuclear accord known as the Joint Comprehensive Plan of Action. After US President Donald Trump shredded the Obama-era policy and reimposed sanctions, tensions between Iran and its western counterparts has been rising.

The most recent escalation occurred in June when several oil tankers were attacked in the Gulf of Oman during Japanese Prime Minister Shinzo Abe’s visit. Shortly after, a US drone shot was down with Washington narrowly avoiding a direct conflict after Trump halted an immediate military response. However, now with Tehran pushing beyond the stipulated enrichment levels, there is no telling how forcefully the US will respond.

Meanwhile, the EU has created a Special Purpose Vehicle (SPV) known as INSTEX which circumvents US sanctions by allowing European firms to engage in non-US Dollar denominated trade with Iran. This implemented as a way to provide economic relief to Iran and convince policymakers in Tehran to preserve the agreement. However, the EU now may be running out of room to help if they violate the nuclear accord.

EU foreign ministers on meeting On July 15 to discuss how to proceed with Iran’s non-compliance. Adding to the delicate situation is Washington’s warning to Brussels that it too is at risk of incurring the wrath of US sanctions and a possible re-ignition of a cross-Atlantic trade war if it continues to undermine the US’s economic strategy with Iran.


Chart Showing EU Trade

Source: Directorate-General for Trade

The EU and US are also currently in the process of resolving a 14-year old trade dispute with the WTO that may soon conclude – but not in a way markets would welcome. Early in July, the Trade Representative’s office put out a tariff list of $4 billion worth of EU goods it is willing to target in response to EU subsidies provided to the European-based aeronautic giant Airbus.

The EU also has a case with the US – only it’s against Boeing. Both sides are preparing retaliatory tariffs, only this time, the prospective duties will fall under WTO and are not the result of unilateral trade moves by Washington. Europe’s preference is to resolve the matter through diplomacy, though the US may rely on forceful and headline-catching measures – like tariffs – to show strength and strongarm the EU into agreement.

Europe, however, is not without its teeth. Officials in Brussels are prepared to strategically levy tariffs against US agricultural products if Washington proceeds with their duties. Farmers a core constituency of Trump’s whose support he will need in the upcoming 2020 election and are therefore a key target – and vulnerability. Politics will continue to be a major theme driving volatility as the global economy becomes more fragile.

Want to learn how to trade around geopolitical risk? Be sure to follow me on Twitter @ZabelinDimitri.


The export-driven NOK and SEK are vulnerable to a deterioration in US-EU trade relations especially since the latter is the primary destination for over 60 percent of all Norway’s and Sweden’s exports. The Krone in particularly is sensitive to changes in sentiment because of Norway’s strong reliance on the petroleum industry to support its economy. NOK is therefore frequently at the mercy of oscillations in global risk appetite.

Norway Benchmark OBX Equity Index, Crude Oil Prices, NOKSEK – Daily Chart

Chart Showing NOKSEK, OBX, Crude Oil Prices

Furthermore, slower growth out of Europe would be amplified if the US and EU engaged in a trade spat. Internal domestic problems ranging from Brexit to the financial threat posed by Italian debt have caused Nordic policymakers – namely out of the Riksbank – to revise down growth expectations. This is compounded by the fact that Sweden may be teetering on the edge of a financial crisis as household debt continues to rise.

Is There a Leviathan Hiding Under the Grotto of Loose Monetary Policy?

Chart Showing Swedish Financial System


--- Written by Dimitri Zabelin, Jr Currency Analyst for

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.