Tag Archives: Iran
NEW YORK/LONDON (Reuters) – Federal prosecutors in New York have been investigating since at least last year whether Chinese tech company Huawei Technologies Co Ltd [HWT.UL] violated U.S. sanctions in relation to Iran, according to sources familiar with situation.
The prosecutors have been investigating alleged shipping of U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws, two of the sources said on condition of anonymity.
The probe, first reported by the Wall Street Journal on Wednesday, is being run out of the U.S. Attorney’s office in Brooklyn, the sources said. John Marzulli, a spokesman for the prosecutor’s office, would neither confirm nor deny the existence of the investigation.
The Department of Justice in Washington declined to comment.
Huawei, which makes handsets and telecommunications network equipment, said it complies with “all applicable laws and regulations where it operates, including the applicable export control and sanction laws and regulations of the UN, US and EU.”
News of the Justice Department probe follows a series of U.S. actions aimed at stopping or reducing access by Huawei and Chinese smartphone maker ZTE Corp (000063.SZ) to the U.S. economy amid allegations the companies could be using their technology to spy on Americans.
In February, Senator Richard Burr, the Republican chairman of the U.S. Senate Intelligence Committee, cited concerns about the spread of Chinese technologies in the United States, which he called “counterintelligence and information security risks that come prepackaged with the goods and services of certain overseas vendors.”
Republican Senators Marco Rubio and Tom Cotton have introduced legislation that would block the U.S. government from buying or leasing telecommunications equipment from Huawei or ZTE, citing concern the Chinese companies would use their access to spy on U.S. officials.
U.S. authorities last week banned American companies from selling to ZTE (000063.SZ) for seven years, saying the Chinese company had broken a settlement agreement related to Iran sanctions with repeated false statements – a move that threatens to cut off ZTE’s supply chain.
The ZTE ban was the result of its failure to comply with an agreement with the U.S. Commerce Department reached last year after it pleaded guilty in federal court to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran.
In 2016, the Commerce Department made documents public that showed ZTE’s misconduct and also revealed how a second company, identified only as F7, had successfully evaded U.S. export controls.
In a 2016 letter to the Commerce Department, 10 U.S. lawmakers said they believed F7 to be Huawei, citing media reports.
In April 2017, lawmakers sent another letter to Commerce Secretary Wilbur Ross asking for F7 to be publicly identified and fully investigated.
Reporting by Arjun Panchadar in Bengaluru, Karen Freifeld in New York, Eric Auchard in London; Editing by Frances Kerry and Paul Simao
[Originally published as Macro Monday piece on Margin of Safety Investing. Macro Monday pieces are published by noon each Monday for MoSI members.]
On Sunday, pro-Iranian Shiite rebels in Yemen launched a missile attack on Saudi Arabia targeting four cities. The Saudi air defense intercepted the missiles, however, one person died and two others were hurt by shrapnel.
Saudi Colonel Turki al-Malki made it clear who Saudi Arabia thought was to blame: “This aggressive and random act by the Iran-backed Houthi group proves that the Iranian regime continues to support the armed Houthi group with qualitative capabilities…”
Today’s piece will be a continuation of the discussion that I began last year about an impending greater conflict within Iran. Here is the background:
An Iran War Is Coming – Buy Oil Stocks Now
President Trump Validates Iran War Thesis And More Expensive Oil
Is This ‘The Calm Before The Storm’ On Iran And Oil?
Prince MBS And The Peak Oil Plateau
President Trump Just Signaled The End Of The Nuclear Deal With Iran And Higher Oil Prices
For investors, the evidence adds up to being overweight oil stocks on the likelihood of disruptions to Iranian oil supply soon due to sanctions and increasingly likely military action.
From Russia Without Love
Earlier in March, the U.N. Security Council voted for a resolution that prevents Iran from providing missiles to rebels in Yemen. Russia, a permanent member of the council, vetoed that resolution much to the chagrin of the Gulf Cooperation Council nations.
At the time that action was taken, columnist Sawsan Al Shaer made a point of questioning the Russian action stating: “The question is how Russia justifies to Gulf countries the veto it exercised against the resolution that prevents Iran from supplying Houthis with weapons.”
If you are in Saudi Arabia today, after another, and bigger, missile attack out of Yemen, that question is much more urgent. In the past two years, Russia and Saudi Arabia, along with the GCC, have forged more security and trade ties. But after yet another attack, this statement made by Al Shaer seems even more prescient:
Russia now stands completely against our interests and our security. We should ask Russia to clarify its position towards us. It sells weapons to us even as it sells weapons through Iran to militias that threaten us. Then it torpedoes a move to prevent it from selling the weapons that threaten us, as if it seeks to benefit at the expense of our security! This is the rationale of a war trader and not of a state that builds international relations on a sound and sustainable premise.
Despite the fact that OPEC and Russia have a deal on oil production designed to support the price of oil, Russia supports sales of missiles that threaten partners to that deal. Why would they do that?
There are two ideas here to consider, one on the surface, another slightly more complex. The first idea is that Russia simply stands by Iran. While Russia has historically supported Iran, that is a strategic decision. As history and evidence demonstrate, Russian leadership has no love for Islam.
The more complex equation, and probably closer to truth, is that by allowing an Iranian proxy to obtain missiles that threaten Saudi Arabia, the odds of greater conflict that create oil supply disruptions are higher. Clearly, Russia, which gets 30% of GDP and about half of its federal budget from hydrocarbon revenues, benefits if there is an oil supply disruption in the Middle East.
Games Nations Play
The long game in oil and natural gas is becoming shorter. The window for using oil as a primary revenue driver for oil-producing nations is down to about two decades. Saudi Arabia recognizes this through its 2030 Vision. Russia certainly also sees its window closing on oil profits as it has backed off on expensive oil projects, such as the Arctic.
Over the next couple decades, the GCC nations, Russia and now the United States, will be competing with other nations to supply a global economy with natural gas and oil. To maximize profits, there will need to be a balance between economic growth and higher sustained energy prices. To get higher sustained oil and gas prices, there will have to be some pressure on supplies. The U.S., Russia, and GCC nations want that pressure to fall on others.
So, under these circumstances, the three major oil producers must consider their actions:
- Firm oil supply
- Slowly growing demand for the short-term, followed by flat demand, followed by declining demand
- Limited time frame for profiting from oil
- Increasing Chinese (and Asian) net demand
Consider that Saudi Arabia, Russia, and the U.S. all have excess oil reserves that can be tapped. Disruptions to supply in other producing nations will allow these three to profit. At that level, their interests are aligned.
So, now we know where much of the world’s oil will come from. The next key question is: where will it go?
In 2017, China overtook the U.S. as the largest importer of oil with a record 9.57 million barrels per day. China’s thirst for oil is likely to grow about 4% in 2018, down from a 5.5% growth rate last year. Still, that is a significant increase in needed supplies. This is happening at a time when Chinese oil production is peaking and likely to turn over in the next few years.
As we can see from various actions, all three of the biggest producers are looking for ways to increase sales to China and Asia. Russia’s Rosneft through a series of deals on debt, pipelines, and capacity increases has become China’s leading oil supplier, displacing Saudi Arabia.
Aramco (Private:ARMCO) has been building its refining operations in order to gain more market share, including major investments in India, China, and the U.S. Controlling refining, of course, gives Saudi Arabia end points for its oil production and some control over distillate pricing. Aramco is targeting 10 million barrels per day of refining capacity by 2030. This is important as I have targeted that as roughly the year when relatively stable oil supply will be above what will become rapidly falling demand.
The United States is now engaged in serious trade negotiations with China under the threat of tariffs. Last week, I suggested that a main way to reduce the U.S. trade deficit with China would be for them to agree to import more American natural gas. I am sure this is not lost on President Trump who has declared that the United States would become an “energy superpower.”
So that once again raises the question: “how to control oil supplies?” Certainly, sanctioning Venezuela is one way. That’s already in the works as their oil production collapses. Another way would be to sanction Iran again or destroy some of their capacity in a conflict. It is very likely that the U.S. sanctions Iran again in May. A conflict might take longer to play out, dependent on when an uprising might start or when Saudi Arabia retaliates for the missile attacks.
It should be noted and considered that Iran is the one nation suggesting raising OPEC production in 2019. They are also a major natural gas supplier to China. Controlling Iran’s output would seem to be paramount to Russia, the U.S., and Saudi Arabia. Russia was a free-rider when the U.S. had sanctions on Iran. They will be a free-rider again. Aligned interests make strange bedfellows.
From $ 80 Oil to $ 100 Oil
I have previously outlined the likelihood and pathway for $ 80 oil this summer:
Oil’s Technical Path To $ 80 Per Barrel
Oil Price’s Goldilocks Moment
The short story is the OPEC output controls and slowly rising demand have helped reduce oil inventory globally. This lower inventory is starting to create some price inflation for oil.
Sanctions on Venezuela or Iran would assure $ 80 oil this summer. It is possible that oil prices could rise to near $ 100 temporarily before Saudi Arabia kicked in some of its 2+ mbd of excess capacity. Russia too has a bit, though much less than Saudi Arabia, excess capacity it can add. Of course, we know that the United States is heading towards 11mbd of production by 2019.
So, any small disruptions to oil supply can be absorbed rather quickly by the three major producers. In the case of war, where outcomes are less known, oil could surge well past $ 100 per barrel. One newsletter has recently been touting $ 500 per barrel oil. I think that’s clearly extreme, but makes the point, that supply disruptions would have an impact at least short term. I see an oil supply disruption as something that shifts where supply is coming from.
The reason we won’t see oil prices much past $ 100 per barrel in the event of war is that if need be, oil supply can be brought on within a year or two from several other nations, pending assistance from the oil majors and relevant governments. Canada, for example, is a couple stalled pipelines away from being able to add a half million barrels per day to global supply. Brazil, Mexico, Angola, Nigeria, Libya all could add to global supply if the powers that be were motivated to see that happen.
So, while oil is surely headed a bit higher, it is not going to soar as that would cause a severe recession and nobody wants that. All the parties involved are motivated to see oil around $ 80 per barrel, the Goldilocks price.
Build Your Own Oil & Gas ETF
With oil and gas prices likely to rise to a new trading range and some value in the energy space in a broader stock market where it is hard to find value, adding to your energy asset allocation is advisable. The S&P 500 (SPY) (VOO) representation for the energy sector is down to 5.5% which is a multiyear low.
I am recommending a 15-25% overweight to energy for the next 2-4 years. The temptation is to add ETF exposure. That’s not a bad idea. I have on a few occasions suggested buying the Energy Select Sector SPDR (XLE), SPDR S&P Oil & Gas Exploration & Production (XOP), and SPDR S&P Oil & Gas Equipment & Services (XES) ETFs which have been beaten up relative to the stock market. You can certainly buy these ETFs now.
However, there is a better idea for those who are buying individual stocks. Build your own personalized ETF of top energy space companies. Here are the companies on the Margin of Safety Investing “Very Short List.” The “VSL” is a list of companies I believe can lead in the next decade. All of these are buys right now in my opinion.
Energy Stocks To Buy
|Andeavor (ANDV)||Refining – merger or Tesoro & Western Refining|
|Antero Resources (AR)||Natural Gas E&P – serving the east coast, benefiting from U.S. natural gas exports and a takeover target|
|Chesapeake Energy Corp. (CHK)||Oil & Gas E&P – high risk due to debt, however, if oil prices do rise, likely to see dramatically higher free cash flow after next asset sale.|
|Encana (ECA)||Oil & Gas E&P – very cleaned up balance sheet with exposure to 4 great plays including Permian, a takeover target, potentially by Royal Dutch Shell (RDS.A) who described looking for a company that fits Encana’s profile.|
|Helmerich & Payne (HP)||Oil & Gas Services & Equipment – America’s largest land driller and sporting a fat secure 4.2% dividend yield.|
|Kinder Morgan (KMI)||Pipelines – the largest natural gas pipeline company in America with a rising dividend after cleaning itself up after oil crash.|
|Occidental Petroleum (OXY)||Oil & Gas E&P – largest producer in the Permian with diversified assets. Speculative rumored takeover target by Exxon (XOM). 3% dividend.|
|Pioneer Natural Resources (PXD)||Oil & Gas E&P – moving towards being the largest Permian Basin pure play. Selling assets short-term, cash flow machine or takeover target intermediate term.|
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Disclosure: I am/we are long AR, CHK, ECA, KMI, OXY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may initiate positions in ANDV, HP, PX this week. I own a Registered Investment Advisor – https://bluemoundassetmanagement.com – however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.
LONDON (Reuters) – Low on cash but high on hope, Iran’s technology entrepreneurs are learning to live with revived hostility in the United States and growing suspicion – or worse – from hardliners at home.
Their startups and e-commerce apps are flourishing, driven by government infrastructure support and young Iranians educated both in the country and abroad. Some are even drawing foreign investment in a way that Iran’s dominant oil industry has yet to achieve since most international sanctions were lifted early last year under a nuclear deal with world powers.
Life remains tough despite the easing of Iran’s international isolation. The atmosphere in Washington has soured again, with President Donald Trump signing legislation tightening domestic U.S. sanctions on Iran and threatening to pull out of the nuclear accord.
On top of this, Google and Apple have withdrawn some services temporarily or indefinitely for Iranian users in recent months for reasons including the U.S. sanctions.
Still, the absence of U.S. giants such as Amazon and Uber has allowed their Iranian equivalents Digikala and Snapp to grow rapidly. Many other local internet firms are following suit.
Ramin Rabii, chief executive of Turquoise Partners, which facilitates foreign investment in Iran, said Trump’s rhetoric could paradoxically help the tech sector.
“If he keeps talking about sanctions, that would increase the risk of investment in Iran, but at the same time it will keep a lot of competition out,” he told Reuters in a telephone interview from Tehran. “Major global players are not here.”
No figures are available on foreign investment in Iranian tech firms. Rabii, however, estimated it at hundreds of millions of dollars since the nuclear deal came into force.
By contrast, an expected rush into Iran’s huge energy reserves has yet to materialize. French group Total is investing in a gas project but Tehran has yet to seal any major oil deals with international partners.
Foreign investment in Iranian tech remains modest compared with regional mega-deals such as Amazon’s purchase in March of Dubai-based retailer souq.com. Amazon did not reveal the price but beat off a rival offer worth $ 800 million.
Still, Rabii sees a bright future. “Many foreign investors ask me what is the best performing sector in Iran for the next decade. I always name e-commerce and the tech sector,” he said.
After the relative isolation of the international sanctions era, the tech sector has attracted many young Iranians back from the United States, Canada and Europe. They hope to marry their experience of the startup scene with locally-educated talent.
Reza Arbabian left Canada, where he went as a teenager, to join his family textile business in Iran. But in 2012 he launched Sheypoor, the Iranian answer to Craigslist, a U.S. classified advertisements website.
Sheypoor now employs 200 and recently marked its fifth anniversary. Cash, however, remains tight.
“Many foreign companies are still hesitant and Iranian investors don’t understand the value in e-commerce. They cannot accept that they need to wait for five years for a startup to make profits,” said Arbabian.
Some outside Iran, especially in Europe where the sanctions net is not quite so tight, are nevertheless willing to take the plunge. Swedish-based Pomegranate Investment, for instance, has taken a 43 percent stake in Sheypoor.
On a larger scale, Sarava, Digikala’s main shareholder, is 45 percent-owned by foreign investors. These include Pomegranate, which raised its stake to 15 percent with a 41 million euro ($ 48 million) investment in 2016.
Following the Amazon model, Digikala has grown into Iran’s biggest internet company with a market share of 85-90 percent, according to Pomegranate. Staff numbers have leapt in the past two years from 800 to more than 2,000.
Iran came late to mass internet access but has invested heavily under President Hassan Rouhani, hoping to attract foreign cash and create more jobs.
According to the Measuring Information Society of Iran, a government-linked portal, more than 62 percent of households were connected to the internet by March 2017. This was up from only 21 percent in 2013, the year Rouhani took office.
Smartphone ownership has also rocketed. Iran, a country of 80 million people, had only two million smartphone users three years ago but the number hit 40 million in 2016.
Such developments encouraged Kamran Adle, an Iranian born and raised in London, to move to Tehran last year.
“Iranian infrastructure has dramatically improved in recent of years. 3G and 4G is much more commonplace than it was a couple of years ago,” said Adle, whose firm Ctrl+Tech invests in early stage startups and helps them to develop apps.
Some Iranian apps are copies of foreign equivalents, made out of the reach of international lawyers. But the years of isolation also forced domestic talent to be more innovative, and Adle says there is no shortage of app developers.
One such is Farshad Khodamoradi, who has designed the app for a job-hunting startup being launched this month. Unlike traditional sites, “3sootjobs” will use an algorithm-driven matching system to connect candidates with the right employers.
Khodamoradi complains about difficulties in accessing foreign tech services, many of which are U.S.-based. “The main problem is that the global services Iranian startups are using can be cut off overnight,” he told Reuters from Tehran.
He cited Google’s Firebase, a platform used to generate push notifications – such as messages to passengers that a taxi has arrived to pick them up – without their having to open the app.
This was unavailable in Iran on a number of occasions in June and July, disrupting startups including taxi hailing apps, he said. Google did not respond to Reuters requests for comment.
Although technology firms can gain exemptions from the sanctions, U.S. corporations appear unwilling to risk involvement in Iran. In August, Telecommunications Minister Mohammad Javad Azari Jahromi threatened to take legal action over Apple’s removal of Iranian apps from its app stores. Apple did not respond to Reuters requests for comment.
MESSAGE FROM OBAMA
All this seems in contrast to U.S. promises after the nuclear deal. In March 2016, in a message to the Iranian people, then President Barack Obama said ending international sanctions “would mean more access to cutting-edge technologies, including information technologies that can help Iranian startups”.
Since that message, anti-U.S. Iranian hardliners have followed the growth of startups suspiciously, branding them as vehicles of enemy infiltration. Two foreign-based tech investors have also ended up in prison.
Nizar Zakka, a Lebanese information technology expert with permanent U.S. residency, was jailed in 2016 for 10 years for collaborating against the state. He had attended a conference in Tehran the previous year at the invitation of one of Iran’s vice presidents, only to be arrested by the Islamic Revolutionary Guards Corps as he was going to the airport to leave the country.
Iranian-American businessman Siamak Namazi also got 10 years in 2016 on charges of cooperating with the United States. While under arrest, Namazi appeared in an Iranian documentary seen by Reuters in which he said his mistake had been to accept money for his startup from an organization linked to the U.S. Chamber of Commerce.
The Revolutionary Guards, a military force that runs an industrial empire, largely control telecommunications in Iran.
However, tech entrepreneurs say the environment is generally supportive. “We haven’t come across any of those governmental push-backs,” Adle said.
In the longer term, the sanctions would make using the souq.com model to cash in on Iranian investments much harder.
But Eddie Kerman, of London-based Indigo Holdings which links retail investors to Iranian tech firms, is optimistic.
“American companies like Amazon might not be able to enter the Iranian market, but there is a significant possibility that European or Asian companies buy the larger Iranian players,” he said.
Reporting by Bozorgmehr Sharafedin; editing by David Stamp