Storm Clouds Gathering on the Iranian Skyline

Market Trends - 03/01/2018

The resistance to the Ayatollahs and their regime of mismanagement and rigidity is gathering momentum in Persia. Iran which is also known as Persia and their language is called Farsi. The Iranians do not speak Arabic and they are not ethnically Arabs. They have a long history of wealth and middle class values such as education, culture and worldliness. This tradition however has been severely tarnished since 1979 when the Shah of Iran, Reza Pahlavi and his American patrons were ushered out in a power grab by the then exiled Ayatollah Khomeini. The Iranians are Shiite in their Muslim sectarianism. Shiism is the smaller of the two rival streams of Islam, Sunni is the larger stream. The Saudis and the Egyptians and the Indonesians. To name three nations, are largely Sunni in their sectarianism. Iran is the central Shia Muslim nation state.

Why the background? Because the stability of Iran is in play. Remember, we are talking about the 17th largest nation on earth with a population of over 80 million citizens. Day seven of the demonstrations for equality and economic benefits is upon us. The death count is pretty low, by Turkish standards, 12 people reported killed in the disturbances. The regime is clearly restraining itself. But do not forget that the shots in Iran are entirely called by the religious leadership and they have quite a cabal of very loyal minions at their disposal. In short this is a tinderbox and we are at the stage of mere wisps of smoke emanating from the box.

Surely the humanity of such an undertaking is fascinating for all of us. This is human drama of the highest form. Nonetheless…we as traders are interested in this situation, for several market oriented reasons.  The drama can impact directly and abruptly on several areas of the capital markets that we all ought to be well aware of. Starting with what would be the first domino to fall were the tinderbox to actually conflagrate, of course is oil. Iran is the world’s 6th largest oil producer with a daily output of 3.59M bbl/day right behind Canada and ahead of the UAE at 3.85M bbl/d and 3.213 M bbl/d respectively and the world’s 18th largest economy with a GDP of $987b, right behind Australia and ahead of Saudi Arabia at 998b and 927b respectively. She is a heavyweight in all respects. She also plays a significant role in the politics of her neighborhood.

These realities have the potential to set off alarm bells in the currency markets as well as the gold markets and to some immeasurable degree, though likely significant, the crypto currencies as well. When the house starts rocking, these assets are going to start knocking. Position yourselves. Keep abreast of this story and be prepared to deploy your assets as needed. One thing in affairs such as this is certain: there is nothing certain. In other words, we don’t know what a spark to touch of a conflagration might be or where it would come from. Disruptions in the oil patch seem obvious but so what? Maybe someone will do something terrible to make the skittish Israelis nervous causing an overreaction… It doesn’t matter WHAT the ignition source is. What is crucial is that we have our eyes peeled and our accounts ready to capitalize on whatever ensues. Finally, this does not surely end in tragedy or bloodshed. It is entirely possible that the regime could find a creative and successful solution to this matter. This would have terrific consequences and an entire set of other equally good trading outcomes that would ensue. Total the French energy giant comes immediately to mind. As the motto of the Boy Scouts enjoins: Be Prepared.

 

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