Iran & the USA - Impact on Oil

Invast Insights

Week Commencing November 25, 2013

www.invast.com.au | 1800 468 278

This week we look at the following topics:

1.0 Geopolitics and impact on markets

2.0 Indonesia & Australia’s generational struggle

3.0 Iran & the USA – Impact on oil

4.0 Educational videos – stocks and forex

5.0 Weekly economic calendar



1.0 Geopolitics and impact on markets

Over the year we tend to focus on investment strategies, trading ideas and

markets in general. We try our best not to indulge in politics or political

debates. Basically, these are pointless. We believe the smart money ignores

the political noise and focuses on market opportunities. Sometimes the

government and politics provide these opportunities, though not often

enough to waste time. Occasionally there is room for every trader and

investors to sit back and ponder on the geopolitical landscape. We use the

word geopolitics intentionally.

Geopolitics focuses on larger, strategic efforts by nations to impose their

goals and ambitions. It goes beyond the daily political rhetoric that is often

read on the nightly news. At Invast, we like to focus on geopolitics to help

drive our broader investment themes and thoughts. This week’s issue is

written with a geopolitical focus. We apologise if you find these themes

boring and unnecessary.


What we have written about this week is always in the back of our minds. The

point is to help articulate our way of thinking with you - our clients. At times

the market will slow down, news flow will become redundant and we take

this opportunity to focus on some big picture themes. There is no point

wasting time on news flow that has no immediate impact or benefit.

Geopolitics helps explain long term investment decisions. Australia’s huge

energy boom is part of an overall shift by nations to diversify their sources of

energy. Global multinational businesses arrived in Australia with huge cash

reserves because they knew the world is changing. When you focus on the big

picture themes, it often provides investment opportunities that others will

miss. British Gas, Chevron and a whole list of other multinational groups

didn’t just wake up one day and decide to build multibillion dollar projects in

eastern Australia around unconventional gas reserves. It was all driven by

geopolitics.

We hope this gives you some context on what we are about to write below.


2.0 Indonesia & Australia’s generational struggle

Recent press headlines are dominated by an ongoing political tussle between

Australia and Indonesia’s governments. Suggestions are that Australian

intelligence spied on Indonesia’s President and his wife, among other key

officials. Normally this wouldn’t have been a major issue if it was not for the

personal nature of the surveillance targeting the Indonesian President. We

think the matter was complicated by the phone tapping of Susilo Bambang

Yudhoyono’s wife, a cultural insult in what is largely an Islamic country.

Indonesia as a sovereign, emerging nation must respond, with its President

Yudhoyono knowing very well the political and potentially social backlash

against his own government if his response was not firm enough. With

economic prosperity comes a rising sense of nationalism. As a western ally,

Australia has previously been a target of Indonesia radicals – the 2002 Bali

Bombings the most deadly killing 88 Australians. Equally interesting,

incoming Australian Prime Minister Tony Abbott knows the need to


maintain a firm foreign policy agenda based on an aggressive election

campaign run by his party. Both leaders are playing hard ball, as expected,

over a trivial issue that has very little geopolitical consequence.

Why should you care about this as an investor? The phone tapping issue

highlights a more prevailing geopolitical tussle between Australia and

Indonesia, an ongoing theme which will likely dominate the relationship over

the next decade. Australia has emerged into a resource rich supplier of

minerals and energy into Asia. As an island nation, its maritime interests are

more commercial than military. Australia cannot ignore the geopolitical

importance of Indonesia in maintaining its interest. As huge liquefied natural

gas projects commence production from 2015, seaborn trade between

Australia and its Asian neighbours will only make its maritime interests more

vulnerable and subject to exploitation. This is in addition to the seaborn trade

of iron ore and coal into Asia and the flow of imported petroleum from

refineries in Singapore and Malaysia.


In turn, Indonesia knows the benefits that Australia can provide – mostly

capital and foreign investment as its domestic economy grows. But security is

also high on the agenda. Both Indonesia and Australia have a vested interest

in maintaining a healthy relationship. The terms of this relationship are now

subject to negotiation – both sides want the best return for their investment.

While Indonesia is still very much focused on its own domestic issues,

Australia is facing a more delicate geopolitical situation. Australia’s economic

core and trade flows are becoming more aligned with its Asian neighbours –

the time must come for it to decide if it remains aligned with its traditional

western allies or starts shifting its foreign political and geopolitical activities

towards those more aligned with its neighbours – namely China and its

growing sphere of influence. The recent decision to host US Military troops in

northern Australia was a direct message that Australia, for the time being, is

unlikely to shift away from its traditional core. The consequence of that

decision is now potentially playing out.


We think Indonesia is now under pressure to respond. The phone tapping

scandal is an opportunity to renegotiate its position. Indonesia’s security and

stability has long been at the core of the Australian-Indonesian relationship.

Recent activity in the South China Sea has highlighted the growing

competition for maritime interests. The fact that Indonesia had previously

allowed Australian vessels entry into its territorial waters as a deterrent to

asylum seeker movements highlights Indonesia’s willingness to further

endorse its Australian security relationship. But Indonesia must tread carefully

and ensure its sovereignty is not compromised, at least in the eyes of its Asian

neighbours or its population of 235 million people – more than ten times that

of Australia.

When Indonesia is secured and under the influence of Australia and its allies,

it serves as a security perimeter and valuable trading link. Indonesia’s 17,500

islands are either a protective wall for Australia or a beachhead of foreign

aggression. Indonesia knows this very well. If Indonesia opts to destabilise its

relationship with Australia or fall into an enemy power, as it did to Japan


during World War II, Australia will quickly find itself highly vulnerable at a time

when its main energy and minerals exports are starting to rump up via

seaborn trade.

The situation between Australia and Indonesia is likely to worsen before it

improves in 2014. Indonesia needs to reassure China and Japan (to a lesser

extent) that it is committed to remaining an independent player. A hard line

response to Australia’s intelligence efforts provides this opportunity. Australia

will ultimately lure Indonesia back with its competitive advantages and by

ensuring the country remains as friendly as possible in order to maintain

commercial interests. But like with all things in life, there is the potential for

this hypothesis to breakdown. We will be watching developments very

carefully in the coming months to see if a more aggressive Indonesia decides

the price for collaboration with Australia has now become too high.


The key sectors of the market to watch on any deterioration between

Australia and Indonesia are:

• Industrial businesses like Coca Cola Amaltil (CCL) who has been investing

aggressively over the past few years in order to gain a foothold into the

Indonesian beverage market. CCL has recently announced that high levels

of inflation are hurting sales volumes in Indonesia but management is

committed to ensuring growth continues. CCL is perhaps one of the most

aggressive Australian investors into Indonesia and while bottling of

beverage products will not necessarily come under political influence,

investors will be cautious.

• Liquefied natural gas exposures like Woodside Petroleum, Origin and

Santos. While seaborn trade is unlikely to be impacted, there is scope for

caution and any potential delays to projects of revenue flows from any

territorial or maritime disputes. The market will be watching this area

closely.


• Agriculture and cattle trading, the most obvious names coming to mind

are companies like Australian Agricultural Company (AAC) which is a

major exporter of cattle related products. Indonesia has already imposed

live cattle import permit numbers and conditions after Australia imposed

a temporary ban on live cattle exports.

• Ramsay Health Care (RHC) operates some private hospitals in Indonesia

although contributions to group profit and operating revenue is very

minor at only 2% respectively.

• Mining companies who have interests in Indonesia. Robust Resources

(ROL) has significant interest in Romang Island – one of the richest and

most attractive metal prospects according to recent drill results and

exploration feedback. There are plenty of other Australian companies in

this space including NCM, RIO and CKA.


3.0 Iran & the USA – Impact on oil

While Australia and Indonesia dominate discussion in our own backyard, one

of the most important geopolitical developments with respect to the Middle

East is currently taking place between the United States and Iran. Discussions

are currently taking place over an agreement to allow Iran the limited

capacity to develop nuclear power and in return the removal of economic

sanctions which have crippled the country’s economy. We have previously

written about Iran as an important player in the global supply of oil, not

necessarily via its own production assets, but through its influence across the

volatile Persian Gulf region.

The biggest loser in an improved Iran and United States relationship is Saudi

Arabia which co-incidentally is the largest single producer of oil. We discussed

this in our previous Invast Insights report along with our analysis on which

countries play as key swing producers in terms of global oil production.


It comes as no surprise that Iran’s embassy in Lebanon was attacked last week

– perhaps a sign of growing angst among Saudi Arabia and its Gulf allies over

the warming of relations between Iran and the United States. The largest

single disruption to oil supply would be political turmoil in the very volatile

country of Saudi Arabia – a country which the West knows is run by a fragile

system of government which is structurally susceptible to internal social

issues. The Saudis are so frightened of social disorder that they have

announced huge multibillion dollar public spending and welfare programs

every time the ruling family’s power has come under threat.

Iran, Saudi Arabia, Kuwait and the United Arab Emirates combined produced

around 25% of global oil production last year. It is a huge concentration of

supply in one single region, a region that has seen an elevation in regional

infighting over the past decade and an elevation of competing interests

directly involved in a proxy war via Syria. We feel that a fundamental shift in

the geopolitics of the region might be under way and oil traders will start to

take notice of the vulnerabilities present sometime in early 2014.


We presented our technical analysis on the Brent crude price last week and

have been updating our technical views on a daily basis via our YouTube

channel and the Invast website. Brent has remained relatively solid despite a

rally in the US dollar on the back of tapering expectations. Gold has slipped

but the oil price remains firm. We think that the smart money knows very well

that Saudi Arabia’s glory run in terms of geopolitical influence might be

coming to an end. More attacks on Iranian interest can be expected in the

coming weeks – Iran knows that it must prepare to control the backlash in

order to pursue its geopolitical and economic gains. Its ability to maintain its

sphere of influence in Syria will be a major confidence boost. The foreign

biggest loser from Syria’s war if the regime can hold on, will be Saudi Arabia

and its Gulf periphery – the United Arab Emirates and Qatar.

We will continue to watch for anecdotal signs of evidence in the dynamic

geopolitical shift – a theme which has the potential to become significant for

energy markets in 2014.


4.0 Educational videos – stocks and forex

We recently filmed some educational videos to help traders understand, plan

and execute more effectively. The videos touch on both stock investing and

forex trading. These videos are a great resource regardless of how

experienced you are in trading markets. Sometimes many of the best traders

can forget the basics, its worthwhile navigating through this huge archive

over the quiet period in markets to ensure best results in 2014.


Chart Pattern Video Tutorials

(Click here: http://www.invast.com.au/resources/video-training/essential-

chart-patterns.aspx)

• Discover Why Chart Pattern Analysis is so Simple, yet Powerful for Traders

• The Importance of Ascending and Descending Triangles when Trading

• Why Chart Patterns Trading Techniques are Great for New Traders Starting Out

• How to Identify Early Reversals Using Chart Patterns & Candlesticks

• 7 Continuation Chart Patterns with Real Life Market Examples

• 6 Reversal Chart Patterns with Real Life Market Examples

• 3 Widely Used Continuation Chart Patterns and When to Use Them

http://www.invast.com.au/resources/video-training/essential-chart-patterns.aspx


















Bullish Candlestick Pattern Video Tutorials

(Click here: http://www.invast.com.au/resources/video-training/bullish-

candlestick-patterns.aspx)

• 3 Candlestick Charting Patterns Traders Regularly Overlook

• 5 Candlestick Charting Patterns You Must Learn as a Trader

• 9 Bullish Candlestick Charting Patterns with Market Examples

http://www.invast.com.au/resources/video-training/bullish-candlestick-patterns.aspx


















Bearish Candlestick Pattern Video Tutorials

(Click here: http://www.invast.com.au/resources/video-training/bearish-

candlestick-patterns.aspx)

• 9 Bearish Candlestick Charting Patterns with Market Examples

• Powerful Early Reversal Candlestick Patterns Every Trader Should Know

• Discover Why Forex Candlestick Charts Differ from Stock Charts

• Discover How a Single Candlestick Can Tell You a Story

http://www.invast.com.au/resources/video-training/bearish-candlestick-patterns.aspx


















How to Build a Solid Investment Portfolio

(Click here: http://www.invast.com.au/resources/video-training/how-to-build-

a-rock-solid-investment-portfolio.aspx)

• Essential Valuation Strategies to Improve Your Portfolio

• How to build and manage a share portfolio

• What to look for when buying a stock

• Three key metrics to measure a company

• Common reasons for stocks falling

http://www.invast.com.au/resources/video-training/how-to-build-a-rock-solid-investment-portfolio.aspx




























5.0 Weekly economic calendar





7.0 Disclaimer

Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us.

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Iran & the USA - Impact on Oil

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