Investors warned to expect increased volatility as US pulls out of Iran deal

Donald Trump’s decision to withdraw the US from the nuclear deal with Iran had swift repercussions on the global markets this morning, as the oil price surged to new post-2014 highs.

The announcement from the US president, who described the deal as “decaying and rotten” was roundly condemned by the remaining signatories to the 2015 deal, with Britain, France and Germany vowing to strive to salvage some aspects of the agreement with fellow parties China, Russia and Iran itself. The announcement left the US looking increasingly isolated, with only Israel and Saudi Arabia declaring their support for America’s withdrawal.

Trump said yesterday America will be imposing “powerful” sanctions with all but immediate effect. The price of a barrel of crude oil rose 1.10% overnight to reach 70.67 WTI.

Tom Elliott, international investment strategist at deVere Group said today investors should expect an increase in market volatility and advises they ensure that they are properly diversified.

The senior analyst said that “Investors should expect an increase in market volatility following Trump’s announcement that he is quitting the Iran nuclear deal,” and warned of the strong potential for “Global stock market sell-offs as the world adjusts to the news.”

‘Severe approach’
Eliot said: “Due to the severity of the US president’s approach, in the shorter term at least it is likely gold and the U.S. dollar may rally on growing fears of further conflicts in the Middle East breaking out; and risk assets, namely stocks and credit markets, may weaken. Oil may rally strongly.

“We will need to wait for the full Iranian response. However, I expect that they will try to continue to appear the reasonable partner and work with Russia and the Europeans, playing them off against the US. If they take a more aggressive stance, oil, gold and the dollar will go considerably higher.”

He concluded: “Geopolitical events such as these underscore how essential it is for investors to always ensure that they are properly diversified – this includes across asset classes, sectors and geographical regions – to mitigate potential risks to their investment returns.”

Unlikely the deal can continue
Richard Robinson, manager of the Ashburton Global Energy Fund, said this morning that “It is highly unlikely the deal can continue without the participation of the US and a complete collapse is probable. Although the Iranian government insists the deal will endure simply without the US involvement, it is hard to see how it could survive.

Robinson continued, “There is little reason why the Iranian government would continue to cooperate with inspections should European corporations reduce Iranian presence and oil purchases, on fears of US financial reprisals. This is despite European legislation, enacted in the 1990s, protecting companies affected by US sanctions. A choice for corporate Europe between the US and Iran is unequivocally going to fall the way of the US.”

“This decision was no major surprise,” he said, “considering the rhetoric and conduct of the president – who replaced secretary of state Rex Tillerson and national security adviser HR McMaster with hardliners Mike Pompeo and John Bolton. However, on the face of it, the announcement went much farther than was expected and was essentially a full pull-out, with no room for negotiations.”

Christopher Copper-Ind
Christopher Copper-Ind is Publisher and Editor of International Investment. His previous publishing experience focused largely on the Middle East and emerging markets, and he was Editorial Director of The Business Year, based in Istanbul, for three years before moving back to London in 2017. He is the author of How to Negotiate, to be published by Macmillan in 2019.

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