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.
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.
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.
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.
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.
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