Winners: Oil Stocks
One of the most obvious winners from the U.S placing heavy sanctions on Iran, the world’s fifth-largest oil producer, are oil companies, which will benefit greatly from the higher prices that will result from further pressure being placed on already tight oil supplies. It’s estimated that as much as 1 million barrels per day of Iranian oil supply could go offline due to the sanctions.
Several major oil companies were already coming off their best quarters in years in the first-quarter, even with oil in the $50 to $60 range, thanks to several quarters of belt tightening necessitated by oil’s dramatic fall in late-2014/early-2015. Needless to say, those results will only improve further now that WTI has pushed past the $71 mark. With stronger balance sheets, oil companies will be in a good position to return more of their growing profits to shareholders than they would’ve been a year or two ago.
Loser: Total SA (ADR) (NYSE:TOT)
Total SA (ADR) (NYSE:TOT), which signed a $5 billion deal with Iran last year to develop the South Pars offshore field alongside China National Petroleum Corporation (CNPC), is now in danger of losing that project. The CEO of the France-based multinational company has reportedly petitioned French officials to help it secure a waiver from the Trump administration to continue working on the project, in which it has already invested $90 million. Should that fail, Total SA could attempt to salvage some of its investment by transferring its 50.1% stake in the project to CNPC, though even that would be small consolation to losing its projected $3.5 billion in profits over the life of the deal. It’s possible that China National Petroleum will also pull out of Iran, which would complicate matters for Total even further.
Losers: Travel Stocks
As we noted earlier today, rising oil prices will hurt the profitability of cruise stocks, and that’s the case for other sectors of the travel industry as well, including airlines. Airlines were already feeling the heat from brent crude’s rise earlier this year, with American Airlines Group Inc (NASDAQ:AAL) cutting its EPS guidance in late-April. Shares of the company were already down by over 10% in 2018 as of mid-April and those losses have since deepened to over 20%.
For American Airlines Group Inc (NASDAQ:AAL) and United Continental Holdings Inc (NYSE:UAL), the situation is made even more perilous due to both companies having recently stopped hedging against rising oil prices. With fierce competition already exerting pricing pressure on the industry, the timing is not at all good for a further assault on already-thin margins.