Nuclear Deal Could Flood Global Markets with Iranian Oil
Iran and a U.S.-led coalition of six global powers announced early Tuesday that they reached a deal to severely limit Iran’s nuclear program in exchange for lifting international oil and financial sanctions.
With an annual output of about $400 billion, Iran will be the biggest economy to rejoin the global financial system since the break-up of the Soviet Union. While trade and portfolio investment may grow quickly, large-scale foreign direct investment will likely take much longer because the toughest sanctions are to stay in place for several more months.
If the deal holds, Iran will likely have a major long-term impact on supplies and further depress prices in an already oversupplied global market. Iran already has 30 million barrels of crude in storage and ready for sale, and more than three-quarters of its recoverable reserves are still to be developed.
It may take years for Iranian oil exports to return to pre-sanctions levels—almost three times the current rate of 1 million barrels per day—as the country must repair dilapidated infrastructure and wait to pass international checks verifying that it is keeping to its side of the bargain.
Still, when sanctions are finally lifted, the deal should provide an immediate boost to Iran, where government finances and national economy are highly dependent on oil sales. In June, Iran’s oil minister was reported to have met with senior executives of Royal Dutch Shell, Total, and Eni. With the formal announcement of the deal, more companies will be able to adjust their investment strategy and compliance efforts regarding Iran.
Finally, its worth noting that a number of steps, including U.S. congressional approval, are required before trade with Iran is possible, but this agreement suggests that it is at least very much on the horizon.
The full text of the deal is not yet available but we will post details as they are released.