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Iran’s Strategic Plan to Regain Regional Leadership

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Jan. 15 2016, Updated 8:48 a.m. ET

Iran aims for regional leadership

The sanctions on Iran are a strategic advantage for its archrival, Saudi Arabia. The sanctions on Iran have helped the kingdom expand its crude oil market share. Again, due the historical jitters in the relationship between the United States and Iran, Saudi Arabia has access to the United States as one of the prominent markets for its crude imports. The United States (SPY) doesn’t import crude from Iran currently and may not do so even after the sanctions are lifted.

[marketrealist-chart id=969905]

So, the leadership in Tehran is sensing the need to diversify its economy from an oil-dependent one to a global economy. As renewable energy and shale oil technology are rapidly growing, both can hamper the future of the country.

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Stocks that can be affected by Iran’s oil

Investors should note that Iranian oil is likely to hit the market when the latter is already oversupplied. Too much oil can affect the stocks that are operating with a high production mix in oil. The upstream stocks Kosmos Energy (KOS) and Denbury Resources (DNR) have fallen 19.4% and 34%, respectively, on a month-to-date basis as of January 13, 2016. These stocks operate with a production mix that’s greater than 90% in crude oil. On average, all the constituents of XOP that operate with a production mix that’s greater than 90% in crude fell 24% on a month-to-date basis.

Upstream Stocks such as Apache (APA) and EOG Resources (EOG) fell 20% and 9.3%, respectively, on a month-to-date basis as of January 13. These stocks operate with a production mix of 41% and 38%, respectively, in crude oil. The graph above shows how KOS performed in the last four years.

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