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Orit Nathan Mahalal
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Banc De Binary’s Head of Content, an accomplished writer and social media expert with a passion for the financial markets. An expert on all aspects of the internet having spent years in content management roles within the financial industry. Head of a copywriters team who create content for all... More
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  • Is Iran Open For Business? 0 comments
    Feb 9, 2014 4:42 PM

    The markets of Iran, such as precious metals, oil, banking and energy, are looking for action from investors. The temporary, six-month deal struck through negotiations between the six biggest players of the word, including the U.S., Russia, China, France, the UK and Germany on one side of the table, and Iran on the other, has opened the door to Iranian investment.

    Nuclear Thaw

    If the government of Iran is to be believed, the country will abide by the agreement to shut down its production of, and capability to produce, military grade nuclear energy. It will retain the production of nuclear energy that is below war head capacity.

    Investment Interests

    Global sanctions and frozen assets have seriously damaged the Iranian economy. Through the deal struck by the seven parties active in the negotiations, billions in assets are being released, and stiff trade sanctions are being lightened. Iran has gleefully pronounced itself back in business.

    Investors are taking a serious look at what Iran does and does not have to offer. Crude oil exports remain within the tight grip of continuing financial restraints. Since 2010, Iran has seen $120 billion lost to sanctions. The sum of $7 billion is being released to Iran as assets that have been unfrozen. Refined markets are among the products continuing to be held back by ongoing sanctions. Specific markets such as the auto industry will benefit greatly from the lessening of sanctions.

    Auto Industry

    Iran's car dealerships are thrilled at the prospect of global trade in the transportation market. The expectation is that half a billion dollars will materialize as the result of re-opened trade in the transportation industry alone, as reported by Bloomberg News. For those investors seeking hot stocks, Renault, Peugeot and Kia Motors of Seoul are projected to be big winners in the easing of auto trade sanctions.

    In terms of monetary data, Peugeot lost close to €10 million monthly from February 2012 onward as the result of sanctions placed against Iran. Cars manufactured in Iran in answer to the trade embargo, include the Paykan saloon, which supplies the internal market of Iran, as well as Syria and Iraq.

    Shipping Oil

    The decrease in restrictions on the waterways, establishes the transport of oil to large markets such as India and Turkey. The impact of the lifting of sanctions will stretch to the insurance industry in regard to insuring oil cargoes out of Iran.

    Prior to the placement of sanctions, the average daily oil export was 2.5 million barrels. The current interim agreement is not expected to immediately impact the output of 1 million barrels daily that has been the situation since the sanctions were established. Due to the lower production level, the price of Brent crude oil had held steady at over $110 until the Iranian deal was announced. The price as of 27-01-2014 decreased to $108.05. Trade sanctions as to crude oil will be lifted in stages during the period of the temporary agreement, according to an official at the BCS Premier bank of Russia. By the close of the initial six-month agreement, Iran is expected to have returned to its original daily output.

    The Obama administration has estimated that Iran has lost in excess of $80 billion in crude trade revenue alone, as reported by Bloomberg. The financial noose of the sanctions policy has acted as an Iranian incentive to delete their nuclear military threat and break loose from the economic restraints.

    The oil reserves in Iran comprise close to 10% of the worldwide amount, placing the country among the top four nations. Venezuela, Saudi Arabia and Canada are the three countries that have amassed greater total reserves. However, as to gas reserves, Iran is first in the world, ahead of Russia by 0.7 trillion cubic meters.

    Experts project that the temporary nature of the Iranian agreement will dampen its effect upon market vehicles such as Dow Jones, NASDAQ and the S&P 500, as well as on the price of crude. Dow Jones rose a mere 0.06% after the agreement was reported. However, that small increment was sufficient ton vault it to its highest level of 16,072. The world of investment appears to be waiting upon a permanent agreement, the terms of which will significantly impact the parameters of oil prices and market reactions.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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