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Country ETFs to Top/Flop on US Air Raid at Baghdad

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The new year has brought good tidings for oil in the form of rising geopolitical tensions. Oil prices jumped as a U.S. drone strike near Baghdad international airport killed Iran’s top commander General Qassim Soleimani. His death intensified tensions between Iran and the United States.

The United States’ sanctions against Iran were first put into place in August 2018. The sanctions were on cars, metals and minerals as well as U.S. and European aircraft. The second part of the sanctions that bans import of Iranian energy was enacted in November 2018.

The latest U.S. move came after a New Year’s Eve attack by Iran-backed militias on the U.S. Embassy in Baghdad.U.S. Defense Secretary Mark Esper indicated to strengthen forces in Iraq after an attack on its embassy in Baghdad this week.

Geopolitical tension in Middle East implies oil supply disruption. Iraq and Iran jointly account for about 20% of the OPEC output. As a result, the latest clash pushed up oil prices by about 4%.

In light of this, we highlight a few country ETFs that could shoot up in the days ahead. We also mention the country ETFs that could suffer in the current scenario.


VanEck Vectors Russia ETF RSX

Oil is seemingly the main commodity of Russia. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggestnatural gas reserve. This makes it clear why Russia’s economy is highly dependent on the oil price movement.

RSX is the most popular and liquid option in the space, with an asset base of $1.29 billion and average trading volume of more than 6 million shares a day. The energy sector accounts for about 40% of RSX, which charges 65 basis points as expenses.

Global X MSCI Norway ETF (NORW - Free Report)

Norway is among the top 10 nations in terms of oil exports. With its comparatively low population, oil forms a key part of the country’s GDP. Per the U.S. Energy Information Administration (EIA), Norway is the biggest oil driller in Europe.

The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, charging investors 50 basis points a year in fees. The Energy sector makes about 25.6% of the fund. Thanks to a surge in oil prices, NORW may see solid trading ahead (read: 5 ETFs Under $20 Up for Gains in 2020).

iShares MSCI Canada ETF EWC

Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up for about over a quarter of Canada’s economy. The best way to invest in Canada is through the iShares MSCI Canada ETF. The fund holds just under 100 stocks in its basket. Energy makes up a huge chunk of assets, accounting for about one-fifth of the total (read: Top ETF Stories of the Fourth Quarter).

Global X MSCI Colombia ETF GXG

Oil exports in Colombia account for about 20% of government revenues. As a result, a spike in oil prices will definitely ease some revenue pressure. Though the Colombia ETF GXG is heavy on Financials (46.59%), the energy sector has about 17.30% exposure. The fund charges about 61 bps in fees overall.


iShares India 50 ETF INDY

India is almost entirely dependent on imports for its oil needs. The country is likely to witness a rise in oil import bills, thanks to an uptick in global crude oil prices. Higher oil prices might hurt the fund INDY in the near term. Iraq has been India's top crude oil supplier for two successive years now, catering to more than a fifth of the country's oil requirement in the 2018-19 fiscal year.

iShares MSCI Japan ETF EWJ

The country has been among the top 10 oil importers in 2018. So, the country may face some trouble owing to the spike in crude price, though a strengthening yen could mitigate some of the negative impacts.

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