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Written by: George Prior
Should the US tighten sanctions on Iran's crude oil exports in response to the country backing Hamas, it will impact investment portfolios around the world, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The analysis from deVere Group’s Nigel Green comes ahead of a widely expected ground offensive by Israel into Gaza, which could shift the mood music for the West’s response to Iran.
He says: “These sanctions, while driven by geopolitical concerns, are likely to significantly impact portfolios for individual and institutional investors globally. As ever, with increased volatility, there will be fresh opportunities and fresh risks.
“Portfolios that include energy sector assets can be directly affected by the sanctions on Iran's crude oil. Iran is a major oil producer, and restrictions on its exports can result in a reduction in global oil supply, which, in turn, could boost the profitability of energy companies.
“While some energy stocks may benefit from rising oil prices, others may face challenges due to increased production costs.
“Dividend stocks in the energy sector could see price increases, which might be positive for income-focused investors. However, dividend sustainability may be threatened if higher oil prices lead to increased expenses for energy companies.”
The rise in oil prices due to sanctions can lead to broader economic consequences, particularly in the form of inflation.
“Central banks, which have been battling to bring down multi-decade high inflation peaks over the last two years, may respond to rising inflation by considering increasing interest rates again.
“Higher interest rates make borrowing more expensive for businesses, impacting their expansion plans and investments. This, in turn, affects stock prices and overall portfolio performance.”
Nigel Green continues: “Companies across various industries would also face increased production costs due to higher oil prices. These added expenses can pressure businesses to pass the costs onto consumers, potentially impacting their profitability and share prices.
“Developing economies are particularly vulnerable to oil price spikes. Many of these countries rely heavily on imported oil, and surging prices can strain their trade balances and currencies. As such, investors with heavy exposure to these markets need to be extra cautious as risks are heightened.
“In addition, changes in oil prices influence currency exchange rates. Investors in currency markets may need to navigate these shifts, which can impact the value of their investments.”
Sanctions on Iranian oil can introduce geopolitical risks to your investment portfolio. To mitigate these risks, you need to ensure proper diversification of your portfolio across different asset classes, industries, and geographical regions to spread risk and reduce the impact of sanctions on specific sectors.
Also, you should develop a risk management strategy that includes setting stop-loss orders, adjusting your asset allocation, and staying informed about geopolitical events that can impact your investments.
Working with financial advisors who can provide insights and recommendations tailored to your specific investment goals and risk tolerance is likely to prove highly beneficial.
“The US tightening sanctions on Iranian oil could have a negative impact on individual and institutional investment portfolios by disrupting the energy sector, contributing to inflationary pressures, and intensifying geopolitical risks. You need to be aware of the risks – but also the opportunities,” concludes the deVere Group CEO.
Related: Powell More Hawkish as Israel-Hamas War Drives Oil and Inflation Fears?