After months of speculation, Donald Trump finally withdrew from the Obama-era 2015 nuclear deal reached between Iran and six major powers. It also vowed to reimpose all the "powerful economic sanctions” on the OPEC nation waivered within the deal as well as introduce new ones.
The sanctions would be reinstated after wind-down periods of 90 and 180 days so that companies could pull out themselves from agreements with Iran to avoid U.S. sanctions. As such, the sanctions will be levied in two rounds -- one on Aug 6 and the other on Nov 4.
According to the Treasury Department, the first deadline includes sanctions on Iran buying or acquiring U.S. dollars as well as Iran’s trade in gold and other precious metals, graphite and coal, metals such as aluminum and steel, the country’s automobile sector and luxury products such as Iranian-origin carpets and caviar. Sanctions on "significant" sales or purchases of Iranian rials or the maintenance of significant funds or accounts outside the country using Iranian rials will also be reimposed (read: Trump Ends "Defective" Iran Nuclear Deal, Reinstates "Powerful" Economic Sanctions).
In the second round, sanctions targeting companies doing business with Iran’s oil industry will be reinstated on Nov 4. These will include penalties against foreign financial institutions that conduct significant transactions with the Central Bank of Iran and other Iranian financial institutions. The United States will also enforce sanctions on Iran’s energy sector and on petroleum-related transactions with firms including National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company. Sanctions on Iran's ports, as well as the country's shipping and shipping sectors will also be included.
Further, the Trump administration will prohibit U.S.-owned foreign entities from being allowed to engage in certain transactions with Iran from Nov 5 onward. Sanctions on certain Iranian individuals will also be restored from that day.
As such, the resumption of U.S. sanctions could derail tens of billions of dollars in business deals. Overall, the move could result in serious consequences, damaging long-lasting U.S. alliances, upsetting the oil markets and boosting tensions in the Middle East. As a result, this has put focus on several corners of the market with many ETFs & stocks appearing to be hit the most by the sanctions while a few looking well poised to benefit. Below, we have highlighted some of these (read: Top ETF Stories of April):
Iran is OPEC's third-largest oil producer and currently exports about 2.5 million barrels a day. Renewed sanctions would reduce Iranian oil exports, further tightening global supplies and pushing oil prices further up. Oil price already topped the $70-per barrel mark last week for the first time since late 2014 on the speculation of supply disruption in the major Middle East oil producer. Chevron Corp. (CVX - Free Report) , United States Oil Fund (USO - Free Report) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) are the largest beneficiaries from the oil price surge. They gained 7.7%, 6.1% and 12.4%, respectively (read: Oil Trading Above $70: Play the Surge With Leveraged ETFs).
Gasoline price could shoot up as much as 25 cents a gallon following the President’s move, according to analysts. According to AAA, gas price climbed to an average of $2.81 a gallon from $2.66 a gallon a month ago. This has benefited United States Gasoline Fund (UGA - Free Report) , which allows investors to make a direct play on the commodity of RBOB gasoline. The ETF is up about 4% in a month.
With the jump in gas prices, price at pumps also increased making American driving costly. This will hurt auto sales and consumer spending. First Trust NASDAQ Global Auto ETF (CARZ - Free Report) , which offers pure play global exposure to auto stocks, shed 2.7% in a month’s time. Transportation ETFs like iShares Dow Jones Transportation Average Fund (IYT - Free Report) will also get impacted due to higher prices.
Meanwhile, French automobile manufacturer Groupe Renault could be in trouble as it has a $778 million joint venture with Iran to produce 150,000 cars beginning in 2018 (read: Auto ETFs & Stocks Worth Buying Despite Weak April Sales).
Boeing (BA - Free Report) and Airbus EADSF have the largest deal with Iran to supply airplanes that should be revoked after a 90-day period. Boeing has signed a $3 billion deal for 30 737 Max jets with Iran Aseman airline and a $16.6 billion deal with national carrier Iran Air for 80 aircraft while European rival Airbus had agreed to sell 100 jets to Iran. As a result, iShares U.S. Aerospace & Defense ETF (ITA - Free Report) is in the spotlight.
The resumption of sanctions will make the situation in Iran, which is already struggling with plunging currency, even worse. It further raised concerns of heightened geopolitical tensions in the Middle East, compelling investors to shun WisdomTree Middle East Dividend Fund (GULF - Free Report) .
While rising interest rates took the sheen away from the yellow metal, the risk aversion could prompt investors to gold, which is viewed as a store of value and hedge against any market or economic turmoil. As such, SPDR Gold Trust ETF (GLD - Free Report) could see some smooth trading in the days ahead (read: ETFs to Benefit or Lose from Rising Yields).
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