Technology

US Tightens Sanctions on Iran: Country ETFs to Gain/Suffer

The almost year-long U.S.-Iran tensions have taken another turn this week as Washington has announced it won’t renew waivers previously granted on Iran oil import sanctions. The United States’ sanctions against Iran were first put into place last August. That sanctions were on cars, metals and minerals as well as U.S. and European aircraft.

The second part of the sanctions that bans import of Iranian energy was enacted starting Nov 5. These sanctions were part of President Donald Trump’s initiative to put an embargo on Iran’s missile and nuclear programs and diminish its influence in the Middle East.

However, Washington offered temporary oil import waivers to eight key buyers — China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea (read: Iran Sanctions Unlikely to Boost Oil ETFs in 2019?)

But now, the Trump administration plans to toughen the sanctions and stop permitting the above-mentioned countries to import Iranian crude oil. The move has resulted in a sharp spike in oil prices.United States Oil Fund, LP USO added about 2.6% and United States Brent Oil Fund, LP BNO advanced about 2.9% on Apr 22 (read: Oil Jumps: 4 ETFs to Benefit & 4 to Suffer).

The Trump administration is believed to be working with Saudi Arabia and the United Arab Emirates to make up for the output loss caused by the full-scale Iran sanctions. The Saudis and UAE are currently abiding by the six-month output cut deal. The OPEC+ alliance has been in the process to keep 1.2 million bpd of oil away from the market since January.

Against this backdrop, we would like to mention a few country ETFs that could gain or loss from the recent surge in oil prices.  

ETF Gainers

Global X MSCI Norway ETF NORW

Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms a key part of the country’s GDP. Per the U.S. Energy Information Administration (EIA), Norway is the biggest oil driller in Europe.  The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, charging investors 50 basis points a year in fees.

The ETF is concentrated on energy stocks, as these make up for more than 30% of the portfolio. Thanks to a surge in oil prices, NORW may see solid trading ahead (read: Norway Hikes Rate for First Time in 7 Years: ETFs in Focus).

iShares MSCI Canada ETF EWC

Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up for about over a quarter of the Canada’s economy. The best way to invest in Canada is through iShares MSCI Canada ETF. The fund holds just under 100 stocks in its basket. Energy makes up a huge chunk of assets, accounting for over one-fifth of the total.

VanEck Vectors Russia ETF RSX

Oil is seemingly the main commodity of Russia. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggest natural gas reserve. This makes it clear why Russia’s economy is highly dependent on oil price movement (see all Broad Emerging Market ETFs here).

RSX is the most popular fund in the Russia ETF space. The energy sector accounts for about 40% of RSX, which charges 67 basis points as net expenses.

ETF losers

iShares India 50 ETF INDY

India is almost entirely dependent on imports to back its oil needs. An oil price rally could thus be a major deterrent to India investing (read: Higher Oil Prices to Spell Trouble for These Country ETFs).

iShares MSCI Turkey ETF TUR

Normally, Turkey’s 90% of the crude requirements are satisfied by imports. Iran is one of the biggest crude oil exporters for Turkey. The country is also suffering from higher inflation.

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US Commodity Funds United States Oil Fund (USO): ETF Research Reports

United States Brent Oil Fund LP (BNO): ETF Research Reports

iShares India 50 ETF (INDY): ETF Research Reports

iShares MSCI Turkey ETF (TUR): ETF Research Reports

iShares MSCI Russia ETF (ERUS): ETF Research Reports

iShares MSCI Canada ETF (EWC): ETF Research Reports

Global X MSCI Norway ETF (NORW): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.