News broke yesterday afternoon that the United States and UN negotiators reached a deal with Iran concerning its nuclear program.
Secretary of State John Kerry confirmed the news on Twitter as stories spread throughout the Western press claiming a deal was struck.
It should be mentioned that both sides said publicly that a “framework” was reached and that the actual terms of the deal had to be formally drafted, signed, and agreed upon. Essentially a deal is done, but the final stamp of approval is needed.
If the U.S. and Iran give that final stamp, then the new deal would be an historic example of compromise between two nations long distrustful of one another.
And, of course, the deal would change things in the global energy market — drastically.
Here is a brief overview of the “framework” (some of the terms have yet to be disclosed):
- Iran agrees to reduce the number of centrifuges from 19,000 to about 5,000 and maintain that amount for the next 10 years. Centrifuges enrich uranium into the type that can be used for weapons.
- Iran will not build new facilities and will restrict uranium enrichment for the next 15 years.
- The Fordow enrichment site will be converted for medical and nuclear research with foreign scientists at the facility, while the heavy reactor in Arak will operate on a limited basis and will not generate enough fuel for a bomb.
- Iran agreed to reduce its uranium enrichment from 20% to 3.67% for at least 15 years. It takes 90% enriched uranium to produce a nuclear weapon, while most power reactors require anywhere from 3% to 5% enrichment.
- The United States and other world powers that have imposed sanctions on Iran for over a decade will lift the sanctions immediately as long as Iran doesn’t interfere with rigorous and consistent inspections for the next 15 years.
With sanctions against Iran set to be lifted, there are many important ways in which the global markets will be affected, especially when we talk about energy.
The market it affects the most is the crude oil market.
Here’s how…
Oil Falls; Will it Last?
Iran has been under official sanction by the UN Security Council since 2006 after failing to acquiesce to Western demands that the Iranians stop all enrichment activity.
After nearly a decade of strict sanctions against Iran’s oil and finance industries, both sides came to the negotiation table over a year ago.
On one side, the U.S., France, Britain, Germany, China, and Russia worked to curb the proliferatory elements of Iran’s program, while the Iranians fought for their own autonomy in energy production.
Upon news of the deal, the market saw oil drop significantly.
Brent crude fell almost $3 per barrel, while West Texas Intermediate dropped 3.5% to $48 per barrel.
The reason for this reaction is simple…
Per the deal, sanctions against Iran’s oil industry would be lifted, which means Iran would be able to increase the export numbers you see above.
In an already flooded global market, news of the possibility of more oil sent prices down again.
While this is a completely plausible reason for oil prices to fall, the market fails to recognize that oil could actually go up because of this deal.
With Iran holding some more clout in the oil market in the Middle East, the nation will have incentive to grow production and exports.
Iran’s natural enemy by proxy — Saudi Arabia — may lose its gumption in an oil price war with the United States, Russia, and other OPEC producers.
Sure, the Saudis can withstand low oil prices until shale wells dwindle further, but with Iran, Russia, and the U.S. continuing production growth, Saudi Arabia will want to cut production, as a longer period of low prices will hurt revenues and cause budgetary problems for the Kingdom.
I realize this may sound counterintuitive, but while prices stand to fall in the short term, the long-term health of the oil market improves with a diversified set of major producers and exporters.
With that, long-term investment improves as well…
Ways to Benefit from an Iran Deal
By pushing short-term oil prices lower, the Iran deal gives us a great buying opportunity for oil stocks.
By no means am I suggesting you buy Iranian oil companies or speculative plays out of the Middle East. Instead, it would behoove you to find a constructive way to play a coming rise in oil exports and, eventually, prices.
Tanker companies authorized for American imports will be valuable, as will American midstream companies that are involved in the movement of refined oil products like gasoline and plain old crude oil.
The United States, still the biggest oil importer in the world, should now look to lift the export ban to remain competitive with global prices, as Saudi Arabia and Iran will both have a presence in the export market.
And midstream companies in the U.S. can expect to see a vast increase in business as more pipelines, refineries, and storage facilities are permitted and built to boost exports.
In a recent report, I vetted a midstream services company that has improved its business enough to garner an investment from my readers and me.
Its services will be instrumental in the development of midstream and oil logistics throughout the U.S., especially in places like the Permian, where shale oil production is rising despite the bear market.
Click here to learn more about this company.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
