The ugly picture isn’t driven as much by natural resources or trade as it is by geopolitical currents. Given the ongoing conflicts in Syria and Yemen, Iran’s foreign policy stance will be critical going forward. Any coordination with Saudi Arabia, the other regional power, to ensure peace in the region would be positive. Likewise, any adverse conversations and unwillingness to cooperate might push the region toward further violence, in my view. While our base case scenario assumes cooperation between the two regional powers, a lack of cooperation would likely cause the overall risk premium in the region to increase significantly.

1 Source: CEIC data, July 16, 2015

2 Source: BP Statistical Review of World Energy, 2015

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Important information

A risk premium is the amount of return an asset generates above cash.

An oligopoly is a situation in which a particular market is controlled by a small group of firms.

Spread represents the difference between two values.

The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.