How To Trade The Iran Nuclear Deal

By: Wayne Duggan

One of the hottest topics in the global political world in 2015 has been the international talks surrounding an Iranian nuclear deal. On July 14, Iran and the P5+1 nations signed the Joint Comprehensive Plan of Action, which is aimed at reducing Iran’s nuclear program. In return, international sanctions on Iran will be eased.

While the deal is certainly historical, traders see the reemergence of Iranian international trade as an opportunity for big profits. Here’s a look at how to trade the deal.

Europe/China

Prior to the implementation of Iranian sanctions, European countries were Iran’s largest trading partners. According to Bloomberg, Euro-Iranian trade numbers plummeted from $32 billion annually to only $9 billion after sanctions were put in place. After sanctions were established, Iran was forced to meet its needs for machinery and industrial equipment via trade with China.

The lifting of Iranian sanctions likely means that some of Iran’s $41+ billion in annual trade with China will likely shift back to Europe, resulting in a modest boost to European manufacturing demand and yet another piece of bad news for slumping China.

European Oil Majors

Iranian imports could make a minor positive impact on European manufacturers, but Goldman Sachs analyst Henry Tarr believes that the key trade in the wake of the nuclear deal has to do with Iran’s massive oil and gas reserves. Iran has the fourth largest global oil reserves and the largest natural gas reserves of any nation.

The flood of new Iranian supply into an already over-supplied global oil market has been one of the major concerns weighing down oil prices so far in 2015. While uncertainty still remains surrounding the details of the deal, Goldman Sachs estimates that Iran could potentially contribute about 350kbls/d to global supply growth in 2016, more than 25 percent of the world’s projected 2016 demand growth. In addition, the firm predicts that Iran has the potential for 1mnbls/d growth through 2020.

According to Tarr, European oil majors could be major beneficiaries of the Iran deal. “Although the key will be the contract terms which will dictate profitability,” he noted.

Goldman names European oil majors Enersis SA (ADR) (NYSE: ENI), TOTAL SA (ADR) (NYSE: TOT) and Statoil ASA(ADR) (NYSE: STO) as the top stock plays on the Iran deal.

Other Beneficiaries

According to Elvis Pellumbi, Portfolio Manager at U.K. hedge fund CF Partners, the benefits of the Iran deal will not be confined to European majors.

“Oil and oil services companies will benefit,” Pellumbi said. “Iran has some of the largest oil fields in the world and also most cost effective. Hundreds of billions of dollars need to be spent to update their infrastructure and develop these resources.”

Pellumbi named Schlumberger Limited. (NYSE: SLB), Halliburton Company (NYSE: HAL), McDermott International (NYSE: MDR), Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) as the big winners from the Iran deal.

Buy Low

As the details of Iran’s new trade environment continue to solidify in coming months, the biggest winners from the deal will become more clear. However, traders that want to maximize potential gains should consider buying these stocks now while several of them are trading at multi-year lows.

Disclosure: The author owns shares of Halliburton and Schlumberger.

Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services provided by any of the above service providers and any service used to execute any trading strategies are solely based on the independent analysis of the user.

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