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Iranian oil soon to be back on the market

oil supplyIt looks like Iranian oil will soon be back on the market. The EU banned the import, purchase and transport of Iranian crude oil and natural gas as well as stopping European companies from insuring Iranian oil shipments in 2012. This embargo was a bid to stop Iran’s nuclear programme.

But fresh from a long negotiation, Iran and six major world powers reached a nuclear deal on Tuesday that could transform the Middle East, and which Israel called an “historic surrender”.

Sanctions imposed by the United States, European Union and United Nations would be lifted in return for Iran agreeing long-term curbs on a nuclear programme that many suspected was aimed at creating a nuclear bomb.

So great news for the global oil market, as this new influx of oil is set to keep oil prices low.

Iran has some of the world’s most plentiful oil and gas reserves and is among the cheapest producers. They already have 40 million barrels in tankers anchored in the Arabian Gulf ready to be exported.

It’s rumoured that Opec have no plans to reduce production though as they try to keep their grasp on the market.

So more competition means lower prices imminently, right?

We’re not so naïve. Even if all goes according to plan, sanctions won’t be lifted until 2016 at the earliest. Plus, while Iran has around 40 million barrels of oil to sell off, after that, their supplies won’t be so plentiful. It might take years for Iran to get production in its crippled oil fields back to pre-sanctions levels. The country does possess vast crude reserves — but that doesn’t mean it’s all coming up for sale tomorrow.

In fact, it’s telling that oil prices didn’t drop in the day after the nuclear agreement was announced. Is this because traders had been expecting a deal for months and they’d already priced in its effects? Or it is just because it will take time for Iranian oil to reach the market, and nothing’s guaranteed just yet?

We’re not getting too excited. There’s always the risk that the nuclear deal falls through and the United States and Europe reimpose sanctions so tread carefully.