After Trump declared – for the 38th time – that an agreement had been made with Iran, it looks like it may have finally happened.
What this means is yet to be properly ascertained, but it is promising.
As a dyed-in-the-wool sceptic on all things political, I need to see this agreement deliver the fruits we need. What I am saying is simple: we need to see vast numbers of ships travelling through the Strait of Hormuz without fear, threats, or disruption. And that is yet to be seen.
Don’t get me wrong, any agreement is a massive step in the right direction. However, can we afford to trust anything that happens in the Middle East? I don’t think so.
Oil prices collapsed on Monday morning on the “news”, as those betting on more problems were compelled to dump their long positions. The drop was sizeable – around $4.00 – but in real terms, support was found around the $80 level, and no one appeared too keen to go short there. In other words, fresh selling disappeared.
Lower oil prices are wanted by all of us, but from a speculative point of view, it is too dangerous to go short below $80 because of the inherent risks involved.
Make no mistake, we do not yet know how much damage this war has caused, and it is hard to read between the lines when it comes to published shortages and stockpiles. I am not suggesting that we cannot trust the figures we are being given. I am simply stating, as fact, that the figures we are being given cannot be trusted.
So, keep an eye on when oil starts to move, and how much of it starts to move. And if you are punting on the world’s number one commodity, remember: safety first.
When we look at the other major commodity, gold, this talk of peace has prompted an impressive rally in prices, which you would think was the wrong move if gold is supposed to be a hedge against political instability.
The story is that, with lower oil prices, we should expect interest rates to remain unchanged rather than increase, because inflation worries have declined. Higher interest rates make non-interest-yielding gold less attractive.
And the spin-off? The dollar turned slightly weaker.
The thing is, today is Monday, and any deal between the USA and Iran will not be signed until Friday. And as we all know, that is a bloody long time – especially when Iran’s proxies, Hamas and Hezbollah, are not going to be happy about the deal. And let’s not kid ourselves, nor are the Israelis.
That said, if we can get through to Friday, and a deal can be signed which has some meaning, then there could be some great outcomes over the coming years.
Accepting that it is not going to be straightforward, and that hurdles still need to be overcome, a peaceful and “compliant” Iran would be extremely positive both for the Middle East and the wider world.
Iran has been shackled for decades – and rightly so – by sanctions and various other trade and development barriers. But should the new leadership decide to play ball with the West, the potential growth, both socially and economically, could be massive.
Ninety million highly educated and innovative people, backed by immense oil and gas wealth, could propel Iran into becoming a major economic force. That should not be ignored.
While admittedly I do not give much credence to the utterings of Europe’s “on-the-ropes and toothless” political leaders, the fact that they are willing to work with Iran if the peace deal proves fruitful is good for all involved. Moreover, should things improve, Iran could become one of the best places to invest over the coming decade.
Sure, we all know that what we want and what actually happens are rarely the same thing. And in the case of Iran – under the control of the mad mullahs – you can never throw caution to the wind.
But there is no doubt this is a country with massive potential. All it has to do is stop supporting terrorism and stop being a pain in the ass.
Wishful thinking, I know.
You would have to be really brave to consider investing in Iran at the moment – indeed, at any point in the foreseeable future. However, it is possible, albeit only a small possibility, that an investment in Iran might become one of the best moves traders with “balls of steel” could ever make.
Hands up: I will not be looking in that direction myself. Too old and too risk averse.
But if you are looking for potential, risking a few pennies in what has been the enemy for almost 50 years might at some point – just might – pay dividends.
Please note the political opinions expressed above are those of the author himself, and do not necessarily reflect the opinions of JP Fund Services AS.
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