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Iran’s Nuclear Deal: Bad For Oil, Good For Investors?

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What's going on?

After years of negotiations that culminated in an agreement last year, a nuclear deal with Iran was implemented over the weekend and many sanctions were lifted. Among other things, this means that oil output from Iran is expected to rise quickly – and that put a damper on the oil price on Monday as it fell (again) to a level not seen since 2003. But the opportunities for investment and trade are exciting for foreign investors.

What does this mean?

Now that many sanctions have been lifted, Iran wants to double its oil output which would add roughly 3% to world supplies (that’s more substantial than it sounds). That supply boost helps push down the price.

Sanctions (and economic mismanagement) have put a serious dent in Iran’s economy over the past decade or so. It now hopes to grow at a rate of 8% per year for the next 5 years which could make it the fastest growing large economy in the world. The lifting of sanctions provides international companies opportunities to sell goods to Iran and to invest in businesses there.

Why should I care?

The bigger picture: Business with Iran should be positive for many stocks. Iran isn’t big enough to offset concerns about slowing Chinese or American economic growth, but it is the world’s 18th largest economy and has 80 million people, many of whom are well educated and historically industrious. Some companies will almost certainly profit from the new opportunities. For example, Iran Air immediately placed an order with Airbus for lots of planes.

For you personally: Investment funds specifically for Iran have already been setup. A large UK asset manager partnered with an Iranian-focused firm to offer an Iranian stock fund to international investors even before sanctions were lifted. Other options will probably emerge soon.

Originally posted as part of the Finimize daily email.

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