EU sanctions relief appears more comprehensive than US
Following on from our GEM primer, The Iran Nexus, we focus on what the Iranian nuclear deal could mean for European equities. We present a new timeline of selected key events related to the implementation of the sanctions framework and note that sanctions relief appears more comprehensive on the EU-side than on the US-side. This could lead to more EU business involvement in Iran, in our view.
Europe’s prior trading links a factor
Before the 2012 US/EU sanctions, Europe was a major developed economy end-market for Iran oil and petrochemicals exports and leading source of manufacturing goods, oil services, chemicals and transport equipment. Trade was concentrated in a handful of relationships with major integrated oil companies and multinationals. Those companies
have since withdrawn making straightforward investment opportunities within European equities more of a challenge to identify.
European equities: potential impact if sanctions lifted
We see short-term potential for oil service companies and opportunities for oil majors and E&P companies in the longer-term as oil field developments require significant capital investment and new licenses. Demand for European industrial and consumer goods may also increase if sanctions are lifted and FX reserves are released. Others may be negatively affected. Lower for longer oil and gas prices could add to deflationary pressures and European chemicals companies may face competition from an increase in Iranian petrochemicals production.
Pressure on oil prices and potential gas supply
Iran sits on the world’s most abundant gas reserves and fourth largest oil reserves. The potential return of up to 0.7mdb in production over the next 12 months could add downward pressure on forward oil prices of US$5-10/bbl, in our commodity research team’s view. Meanwhile a lack of investment has seen Iran’s gas supply remain dormant, but we expect the country’s contribution to the global gas supply to be significant with time.