Oil Prices Fall After Iran Agrees To Nuclear Deal

The deal has helped ease tensions in the Middle East region…


Oil prices have fallen after Iran agreed a deal to curb some of its nuclear activities in return for an easing of international sanctions. Iran holds the world’s fourth-largest oil reserves, but its exports have been hurt by the tough sanctions against it. Though Iran will not be allowed to increase its oil sales for six months, the deal has eased tensions in the Middle East – a key oil-producing area. Brent crude was recently down 64 cents at $110.41 a barrel. It had fallen to as low as $108.05 earlier in the trading session. Meanwhile, US light sweet crude was down $1.01 to $93.83, having fallen as low as $93.08.

Knee-jerk reaction?
World powers suspect Iran’s nuclear programme is secretly aimed at developing a nuclear bomb – a charge Iran has consistently denied. In an attempt to force Tehran to curb its programme, the US and other leading economies have imposed a series of tough sanctions aimed at Iran’s oil exports – a key driver of its economy. In November 2011, Washington threatened to shun foreign financial institutions that conducted oil transactions with Iran’s central bank. That prompted several countries including China, Japan, Indiaand South Korea – some of the biggest buyers of Iranian oil – to cut their imports. The European Union also imposed a ban on imports of Iranian oil.
“Working with our international partners, we have cut Iran’s oil sales from 2.5 million barrels per day (bpd) in early 2012 to 1 million bpd today,” a fact sheet published by the White House said. While the deal has raised hopes of a long-term agreement that may allowIran to increase its oil sales eventually, some analysts believe oil prices are unlikely to fall further. “This news is hot off the press, and so there is some knee-jerk reaction,” said Ben le Brun, a market analyst at OptionsXpress in Sydney. “The market will probably want to see the nitty-gritty details of the agreement before we see any further significant declines in prices,” he added.

Analysis

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Iran could be a very big player in the global energy business. But sanctions have made it very difficult to invest in expanding and modernising the sector. Oil production has never returned to the peak it reached in 1974. Output collapsed in the aftermath of the Islamic revolution at the end of that decade. It has partly recovered but remains less than half that earlier high. In the gas industry,Iran has the world’s largest proven reserves (according to BP’s estimates), yet in some years it imports more than it exports. It uses gas for electricity and winter heating. If the Geneva deal turns out to be the prelude to a wider and lasting agreement, Iran could become an even more important factor in world energy. Fuel-intensive companies, such as airlines and travel firms, received a boost on the stock markets as a result.
International Airlines Group, the owner of British Airways and Iberia, was up 2.87 per cent in lunchtime trading, while Air FranceKLM rose 3.11 per cent. Travel operator Thomas Cook lifted 3.68 per cent. “There are a lot of sanctions that have been eased, which will allow Iran to slowly re-enter the global economy,” Jonathan Barratt, chief economist at Barratt’s Bulletin told the BBC. “And as for oil – it’s a just a six-month waiting period. If they tick all the boxes during that time, they will be back in that sector as well.”

–Andrew Walker

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