Iran & The Stock Market
With the mounting tensions surrounding Iran’s development of Nuclear Technology there are certain to be some implications to a number of market sectors.
Acting on the threat to close the strait of Hormuz – Anyone who has studied a simple supply and demand curve knows that if the supply of oil decreases from our top exporters the price will go up. A rise in oil prices obviously causes the price of gas to go up. That in turn effects the price of goods due to fuel (a byproduct of OIL) prices that manufacturers have to eat. Those manufacturers still need to make money and a rise in the price of consumer goods is where we will see it.
Unless Iran has a Navy that the rest of the world has yet to discover, I wouldn’t count on the 30 mile wide straight being “shut” for long. World powers have threatened military action on “anyone” closing the straight or affecting free trade. The simplest play here might be ETF: OIL. You’ve probably already missed the fun money you could have made in October 2011 or at the beginning of this month, but a definitive military closing of the strait would cause a spike in OIL for a few days and a chance to make a good return over that time.
Cuts in oil exports to Europe (Greece/Italy) – Again, this is a supply and demand thing. Iran has already cut supply to the UK and France. While both of those countries rely on a small portion of Oil from Iran, Italy and Greece more heavily import Iranian Oil. With the likes of Italy and Greece looking for Oil elsewhere, that will have to be derived from the “overall supply” which again drives the supply down and the price up.
Cuts in oil exports to India/China – This situation is similar to the above, but really doesn’t leave Iran a leg to stand on. Since well over 50% of Iran’s GDP is based on Oil exports, a cut in exports to Asia might have a crippling effect on the Iranian economy.
A Declaration of War – January 12, 1991, September 14, 2001 & March 3, 2003 all have something in common. They were days that the US congress authorized military engagements or declarations of war in the middle east. In looking at market data trends from these time periods, we see a sharp dip in the overall market followed by a swift recovery (around 2 weeks). This is consistent with investor fear and uncertainty. The word ‘war’ alone is enough to make the investing public feel a little queasy. An interesting play here might be SDS. I will warn you though that SDS is not for the feint of heart. SDS is an index that corresponds to twice (200%) the inverse (opposite) of the daily performance of the S&P 500 (the Index). So if S&P500 is down 20 points, you’re up 40… The name of the game here is timing entry’s and exits properly.
Iran is actually developing for energy purposes – Complete market volatility and wavering investor confidence. Oh wait…
