Cambiar Insights

  • July 15th 2015

    The Iran Nuclear Deal and the Impact on Oil

    The Iran Nuclear Deal and the Impact on Oil

    After nearly two years of negotiations, the P5 +1 (China, France, Germany, Russia, the United Kingdom and the United States) and Iran have reached a nuclear deal.  The key points to the agreement have been ironed out and the official signing will occur in the coming days.  

    The agreement must still be reviewed by Congress, with President Obama vetoing any congressional actions that could potentially block the deal. The International Atomic Energy Association (IAEA) will then begin reviewing and verifying their long list of issues associated with Iran’s nuclear program.  It’s not clear how long the IAEA has to inspect, but they will release a final assessment on December 15, 2015. 

    The two years of negotiations have been concluded with a hefty 159-page document.  A couple notable points:

    1. The Implementation Day when both U.S. and E.U. sanctions can start to be lifted is not likely before December 15th.  On that day, the IAEA will release a report verifying Iran's compliance with the UN resolution before sanctions begin to be lifted. 
    2. If Iran violates any of the requirements set forth by the IAEA, all sanctions will “snap back” into place.  This element of the agreement is important because any future misstep by Iran means sanctions will automatically be reinstated.

    Prior to the sanctions going into effect, Iran was the second largest oil producer in OPEC.  Their production has dropped by nearly 1 million barrels (bbls) per day since sanctions have gone into effect.  The lifting of these sanctions agreement won’t mean production levels will increase anytime soon, due to the lack of investments and neglect of their oilfields.

    The quickest path to reestablishing all of Iran’s oilfields would be to bring in western oil and gas companies to make significant investments and implement modern technology.  The scaling process of sanctions being lifted along with the “snap back” provision likely means western companies won’t be overly active in Iran for a year or more. 

    Iran has an estimated 40 million bbls of oil in storage that could come to the market fairly quickly, but the sanctions will likely keep that tempered a bit.  The key takeaway is that more oil is coming to the market from Iran; however, fears of the Iranians flooding the market once the deal concludes is not likely to happen.

    Tim Beranek - Principal and Energy Analyst

    Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified.

    Tags: Iran  nuclear  deal  oil  OPEC  IAEA  Implementation  oilfields  sanctions  EU