How the Iran deal will affect the Oil prices?

Oil prices have fallen after Iran agreed a deal to curb some of its nuclear activities in return for easing of international sanctions against it.

Iran holds the world’s fourth-largest oil reserves but its exports have been hurt by the tough sanctions.

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 fell more than 2% in early Asian trade on Monday.

It dropped by $2.42 to $108.63 per barrel, while US light sweet crude fell 84 cents to $93.64 per barrel.

“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.”

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 cut off from the US financial system foreign financial institutions that conducted oil transactions with Iran’s central bank.

That prompted several countries including China, Japan, India and 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.

Iran oil exports

“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 allow Iran to eventually increase its oil sales, some analysts said that oil prices were unlikely to see further declines.

“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.

Leave a Reply