Over the weekend, the US, EU, and Iran have agreed on nuclear deal. It involves a trade off of Iran shutting down key aspects of its nuclear program, in exchange of Western powers relaxing of economic sanctions against the country. This not only has major geopolitical implications, but also greatly affects financial markets. The asset classes with that will be the most affected by this will be oil, uranium, and emerging market equities.
The main affected asset will be crude oil (NYSEARCA:DBO), which will likely decline in the intermediate term due to perceived Middle East stability coming from this accord. In the long term, this development is bearish for oil prices due to capital investments from foreign oil companies which will bring improved technology in drilling, refining and exporting Iranian oil. Foreign investment as a result will increase the output of Iran's current oil fields, increase discovery in Iran, and provide a large addition to global Iranian exports. Investors who are long crude oil or major oil stock, should be cautious about their positions, by placing tight stops on the positions or lower their allocation towards this sector.
The Iran nuclear deal will also have effects outside of the oil market. Uranium (NYSEARCA:URA) prices will also likely rise due to Iranians being able to buy uranium legally from the global market as they will be approved in constructing new nuclear power plants. Emerging and frontier markets in the Middle East should also benefit from increased foreign trade with Iran and restrictions of Iranian capital being partially lifted. Turkish (NYSEARCA:TUR) stocks the most to gain amongst these markets due to increased trade benefits from Middle East stability, being one of the few countries in the region whose multinational corporations can expand their commercial footprint throughout the Middle East, and that Turkey unlike the Gulf States would not be economically hurt by lower oil prices. For US equity investors the Turkish ETF or SPDR Middle East & Africa ETF (NYSEARCA:GAF) is likely the best bet to gain from increased growth and stability in the middle east. Uranium is also a good bet, but its fundamentals have more to do with developments in Japan and emerging parts of East Asia and not the news related to Iran.
Overall, a detente between the US and Iran is a major step in geopolitics that changes the landscape of the economies across the Middle East and North Africa. Global effects mainly impact the uranium and oil markets, but will also possibly open up the region as a whole to more foreign investment and regional trade. The immediate outcome will involve changes in the oil market, but opportunities created by these shifts is definitely something to look at in the long term for emerging market investors.
Additional disclosure: I have a long on crude oil futures, which I will tighten my stop or possibly sell within the next 72 hours.