The Iran Deal: A Quick Note
November 24, 2013
Well, it looks like a breakthrough with Iran. More negotiations will take place, along with a six-month trial period designed to advance dialogue and build trust. Hmm.
President Obama has pulled a second-term foreign policy rabbit from the tattered hat of a failing, flailing presidency. It reminds us of Richard Nixon’s similar breakthrough with China in the second term of his failing presidency. There is a tendency of second-term presidents to focus on foreign policy as a way to overcome their lame duck status and establish their legacies.
We expect that the geopolitical risk premia on oil prices will fall. Reduced risk premia will be reflected more emphatically in the pricing of Brent Crude. On the other hand, there will be some slight additional downward price pressure in the US that will reflect in WTI.
When peace breaks out, bullish outlooks prevail. One can chart out positive changes in foreign flows, reduction of risk premia, and beneficial growth activity that are likely to result from a lessening of tension. There is no downside to a six-month exploratory deal with Iran, halting progress at Iran’s nuclear facilities. This initial deal may lead to a longer-term agreement.
David R. Kotok, Chairman and Chief Investment Officer
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