Iran`s Threat to the U.S. Markets Analysis

ERIN BURNETT, CNBC ANCHOR: These images are coming to us courtesy of the Defense Department. They`re of American and Iraqi troops launching "Operation Swarmer" today, the biggest air assault in Iraq since the 2003 invasion.
But despite the ongoing Iraq War, a new national security strategy report from the White House today identifies neighboring Iran as the single biggest threat to the United States. Our chief Washington correspondent John Harwood has the details.
And John, there was some fairly harsh language in the new report.

JOHN HARWOOD, CNBC CHIEF WASHINGTON CORRESPONDENT: There was, Erin. You know it was four years ago that President Bush identified Iran along with Iraq and North Korea as part of the axis of evil threatening the United States. But now in this national security strategy, Iran stands alone. The administration says that Iran continues to harbor terrorists at home and sponsor terrorist activity abroad. Most of all, the Bush administration sees danger in Iran`s nuclear program.
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SCOTT MCCLELLAN, WHITE HOUSE PRESS SECRETARY: But the regime in Iran continues to pursue this wrong course. They need to change their behavior. They continue to defy the international community. That`s why the matter has been reported to the Security Council. We`ve now entered a new phase of diplomacy.
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HARWOOD: Now the question is what more can the U.S. do to stop Iran from developing nuclear weapons. The national security strategy reaffirms the president`s emphasis on preemptive military action against potential threats. But the U.S. military is, to put it mildly, tied down in the Iraq War right now as we just saw in those pictures a moment ago, a war the administration says Iran is interfering with. Iran has also got leverage over world oil markets at a time when energy prices are high and rising. That means this new phase of diplomacy, relying on help from Britain, Germany and, yes, France, may be the best hope for this White House at the moment -- Erin.
BURNETT: John, thank you very much.
And we do want to dig deeper into the Iran story now. The nation alone houses more than 200 global companies, firms that funnel billions of dollars worth of capital and technology into Iran. But President Bush claiming Iraq will be America`s biggest challenge. Will investors be prone to invest less with companies with exposure to rogue nations such as Iran? That`s today`s "Hot Topic" and joining us is Stu Schweltzer, global market strategist with JP Morgan Asset and Wealth Management, and you`re also looking at Roger Robinson, CEO of Conflict Securities Advisor Group.
Well, gentlemen, let`s just get right to this because when you think of Iran, you may think of the nuclear issues, a lot of the geopolitical -- you may think of oil. But Roger, how many companies actually operate there?
ROGER ROBINSON, CEO, CONFLICT SECURITIES ADVISORY: It`s over 200, Erin. There are some 400 companies that are doing business in terrorist-sponsor states as designated by the U.S. Department of State. But over 200 of those are in Iran, mainly in the energy sector, not surprisingly.
BURNETT: And Stu, how significant is this? I mean obviously we had heard about the axis of evil, an infamous statement by this point. But today`s move to put Iran in even harsher language by the government, what does it mean in terms of investment flows.
STUART SCHWELTZER, GLOBAL MARKET STRATEGIST, JP MORGAN ASSET & WEALTH MANAGMENT: Well, you know, I think if you just look at the way the market has reacted today, it doesn`t necessarily mean a whole lot unless we have some kind of significant event. And right now, I think although oil prices are up on the day, the fact that inflation reports came in favorable, the fact that unemployment claims crept up a little bit, tells people that the Federal Reserve is accomplishing its objective. And I think that, unless there`s an event, that is the much more important force in investors` minds.
BURNETT: And certainly, that may be the case, bigger picture, but I want to get a better sense of who exactly it is that does business there. And Roger, I know you said mostly these are in the energy space.
And Stu, I guess that`s no surprise given Iran is the fourth largest exporter of oil in the world.
SCHWELTZER: Absolutely.
BURNETT: But let`s talk about some names, Roger.
ROBINSON: Well, mainly the companies doing business there are foreign companies, Erin, I mean ENI, Royal Dutch Shell, Siemens, Hyundai. Most of the American companies that are doing business there through subsidiaries like GE, Halliburton and others have been urged by shareholder resolutions to exit that space. But I think -- I somewhat disagree with Steve`s statement about risk. I think that even the SEC, in establishing this office of global security risk, is acknowledging that the risk to share value and corporate reputation of companies doing business in places like Iran is definitely on the rise. And we`re seeing a whole new movement on values-based investing as well where shareholders are increasingly very uncomfortable doing business or holding companies in portfolio that have -- that are benefiting a government like in Iran that sponsors terrorism.
BURNETT: Stu, is this part of a broader push towards protectionism? And I ask this in the context of the fact that I believe that you think that oil prices actually may fall this year.
SCHWELTZER: You know I -- that`s exactly right, Erin. I think it`s important -- first of all, is this part of a bigger push toward protectionism? I sure hope not because that would be the greatest danger to world markets that I can imagine short of some catastrophic kind of event. And as far as the implications for individual companies, I don`t disagree at all with what Roger is saying, that company by company, there may be some issues. But I`d ask you to think about it this way: if there`s a problem in Iran, it means reduced energy supplies. And if there are reduced energy supplies then energy companies are probably going to benefit. Maybe those that are uniquely exposed to Iran won`t, but the energy spectrum will benefit. Actually, I do think, though, that absent a problem in Iran, absent some interruption of world oil supplies, I think there`s a reasonable chance oil prices go lower in the next several months because growth is slowing and oil demand is slowing.
ROBINSON: Erin.
BURNETT: Stu and Roger, I -- we -- why don`t we leave it there. I appreciate both of you joining us. This is a debate I know that we will be sure to pick up in the future, Thanks so much to both of you.
SCHWELTZER: Thank you.
ROBINSON: Thank you.
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