Buy Oil Stocks on the Iranian Nuclear Deal

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We may be witnessing history across the Atlantic.

After decades of geopolitical tension in Iran, the situation seems to be getting a bit less tense. Over the weekend, Iran — along with nations in the G6 — signed an agreement to curtail is nuclear ambitions and its enrichment projects. Those controversial programs were thought to be part of a larger nuclear weapons agenda.

To combat those ambitions, the West has brought years of sanctions against Iran. The latest of which hit Tehran right where it hurts: in the "oily" pocketbook. Bans on Iranian crude oil exports have prevented the energy producer from getting its products to key markets in Asia and Europe.

Needless to say, the energy sector didn't take too kindly to the idea that Iran could be finally shipping its crude — to the tune of 2.5 million barrels of oil per day — out to the market. Both international standard Brent and North American benchmark WTI fell hard on the news. Meanwhile, the Energy Select Sector SPDR (XLE) underperformed its sector ETF peers on the positive news.

However, energy investors shouldn't get too bearish on Iran's decision. In fact, they should be buying oil stocks hand-over-fist.

Still Plenty of Uncertainty

The current drop in energy stocks and oil prices based on the Iranian nuclear deal could be one of the best buying opportunities we've have in months.

The important thing to remember is that the deal doesn't actually lift any ban on crude oil exports. It seems that the market didn't read the entire press report.

Over the next six months, Iran will have to prove itself to the U.N. and G6. Under this probationary period, E.U. crude oil bans will remain in effect and limit Iran to approximately 1 million bpd in crude oil sales. However, analysts at British investment bank Barclays (BCS) estimate that Iran will have trouble ramping up its exports to more than 400,000 barrels as restarting shut-in oil wells will prove nearly impossible.

Sanctions that keep Western oil service firms — like Halliburton (HAL) and Schlumberger (SLB) –- from doing business in Iran remain firmly in place. That’s a huge issue because Iran needs their help in order to get oil flowing and keep it flowing. Like much of the Middle East, Iran is facing the problem of dwindling output from its legacy oil fields and needs some Western-style technology to keep pumping.

In addition, U.S. and E.U. sanctions preventing the sale of refined petroleum products into Iran are also still outstanding. And because it has zero refining infrastructure, Iran needs to imports pretty much all of its diesel and gasoline needs. The irony is that Iran needs these fuels in order to help run the ships and equipment needed to export its bounty.

So realistically, while the deal is great for world peace, it isn't going to significantly add any real volume to crude oil supplies in the near term.

Speaking of that near term, this is Iran we are talking about and let's face facts — it has zero credibility in the face of the world. A lot can happen in six months. Iran can renege on its promises. Israel — who isn't at all happy with the deal — could finally decide they've had enough and pursue a military strategy. Syria, Egypt and Libya are still hot beds of turmoil. The Middle East risk premium is still very much alive.

Meanwhile, Congress here at home has already begun discussing going around the deal and imposing harsher sanctions, if Iran doesn't show any progress.

Snag Energy Stocks

The recent dip in energy stocks make the perfect buying opportunity for long-term investors.

While the previously mentioned XLE is a great fund, the iShares Global Energy (IXC) may be a better bet. The key is the fund's global exposure. The exchange-traded fund (ETF) tracks 91 different oil stocks — with about 48% of its exposure to those energy firms located outside the United States.

While that does include Canada, the bulk of these holdings production is priced according to Brent crude benchmarks. Any "hiccups" in Iran's willingness to comply with rules will benefit these firm's more than, say, shale producer Range Resources (RRC). At the same time, the U.S.-based holdings in IXC represent some of the largest and globally diverse energy firms on the planet. They'll pick-up plenty of Brent crude gains as well. Expenses for IXC run just 0.48% or $48 per $10,000 invested

A second play could be in the crude oil itself.

As we said before, the Iranian deal doesn't actually add any new supplies back into marketplace for quite some time. With oil demand starting to move ahead as the global economy is beginning to return to normalcy, Brent prices should grind their way upwards. That makes the United States Brent Oil (BNO) a prime play.

The ETF tracks futures contracts on the international crude oil benchmark. Due to its close ties with Middle East production, BNO should provide a nice gain once the market returns to its senses and realizes what the agreement actually means. That is, if Iran sticks to the nuclear deal at all. If not, BNO should soar. Expenses for the ETF run 0.75%.

At first blush, the deal with Tehran may seem like terrible news for the energy sector. However, the news isn’t as bearish as it seems. For investors, the time to buy energy stocks is on. Both IXC and BNO are prime picks to play Brent's rebound.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.