Historic deals are not achieved every day, but Iran has clinched a deal with its negotiators in the face of outright fear mongering and pessimism. Both parties have ended up with a deal which is beneficial for them, unlike what we have experienced in the Greek saga. Perhaps, John Kerry, the US secretary of State, should also have handled the negotiations rather than German Chancellor Angela Merkel.
World powers have curbed Iran’s ability to produce a nuclear weapon. This is not only in the interest of more stable Middle East, but it also paves the way for more economic growth around the world.
We believe that the Iranian nuclear deal is welcome news for many emerging and frontier markets. The deal is driving optimism across Turkey, Dubai, Abu Dhabi, Pakistan and India.
The Turkish lira, which is under constant downward trajectory against the G10 currency, bounced back upon the news. Turkey is a major importer of oil, and with Iran producing more, it will not only bring Turkey’s oil cost lower, but it will also help expand its exports of goods and services to Iran. Turkish airline’s stock popped today as this raises more prospects of business travel between the two countries.
The Iran deal will also be propitious for Dubai and Abu Dhabi. Both economies have been diversifying their economies into real estate and Iran is a neighbor. Vast numbers of Iranian come to Dubai for holidays. With sanction being lifted, this will persuade them to buy holiday homes and expand their businesses to this region. We’ve seen real estate shares rise today and we do believe this trend will continue over time.
Another frontier economy, which is being assessed by the MSCI to be included in its emerging market list, is Pakistan. The country has been struggling with a shortage of natural gas in recent years and on Tues, it reconfirmed its commitment to a gas pipeline with Iran which will be completed once the sanction are lifted. Therefore, raising curtain on sanctions will not only help Iran to produce more oil, but we trust its other energy sector will also see a lift off.
Two of the major players during these negotiations which cannot be left out were China and Russia. It is relatively effortless to gauge why China wants Iran to sign the nuclear deal — so that there is increased availability of cheap oil. And Russia, by agreeing to this deal, not only burnishes its relationship with Iran, but at the same time it reduces conflict with the U.S., whose sanctions are crippling its economy along with lower oil prices. Russia’s play is certainly long term, and though Iran will be a competitor in oil markets, the country understands its losses will be covered through other dealings with Iran.
Finally, the U.S. will benefit with lower oil prices. There is no doubt that there could be more damage to the U.S. shale oil industry with Iran coming back online, however, given that shale rig counts have been picking up for the past two consecutive weeks even at current prices, this shows that the rig operators are finding more efficient techniques. Moreover, with average consumer saving more due to lower oil prices, we expect them to spend more – something which we have been waiting to see.
To conclude, the Iran nuclear deal will lower oil prices on the one hand, but one the other hand, we will also have the growth issues addressed in emerging and frontier economies, which over the long term will provide more demand for oil. Negotiators have made history today and this can only be seen as something which could bring solutions to the world’s problems and will provide more nuclear free environment.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam