Iran nuclear deal: Why it could mean cheaper gas
Iran and six world powers, including the United States, reached a historic agreement Tuesday that, in exchange for curbs to its nuclear program, would clear the way for Tehran to access world markets after years of crippling sanctions.
The deal could have major repercussions for oil prices and the global energy industry as investors prepare for an influx of oil from Iran, the world鈥檚 reserves. While some analysts say it could take months before Iran can reach its full export capacity, even a modest initial hike in supply could pull international oil prices 鈥� already down by around 40 percent from a year ago听鈥� down even further.
An extended slide in global oil prices would be more good news for drivers already benefitting from a well-supplied oil market. The cost of crude oil, which is refined to make gasoline, accounts for about half of the cost of a gallon of gasoline in the US, according to the US Energy Information Administration. Weak oil prices are why听, the lowest price in real dollars since 2009.听听 听
Shortly after Tuesday's agreement was signed, crude prices fell by as much as 2 percent, with US oil dropping to $50.98 a barrel 鈥� though they rebounded slightly to $52.31 as investors weighed how the deal would be received by Congress, CNNMoney .
鈥淭he prospect of [sanctions] being lifted is creating great excitement ... as foreign trade and investment will allow Iran to make huge efficiencies and drive down the cost of production,鈥� Sarosh Zaiwalla, a London-based sanctions lawyer NBC News.
As part of efforts to discourage Tehran from pursuing its nuclear goals, the US and the European Union in 2012 imposed strict economic sanctions on Iran, including a ban on trade with Iran鈥檚 oil and gas sector and the Iranian government, and a blacklist on Iran鈥檚 shipping sector. US Treasury Secretary Jack Lew estimates听the measures have cost Iran $160 billion in oil revenue in the last three years, .
Tuesday鈥檚 agreement means that Iran may soon be back in the game. The Persian Gulf state has 20 million barrels in stored oil and could export up to 400,000 barrels a day once the sanctions are lifted, Bijan Khajehpour, an Iranian economist and managing partner of Vienna-based consulting firm Atieh International, Bloomberg in June.
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Even without Iran, the oil market is already 鈥渕assively oversupplied,鈥� the International Energy Agency noted in its latest . Iran鈥檚 involvement in the market could mean that 鈥渢he bottom of the market may still be ahead,鈥� according to the agency.
Still, it could easily take six months before anyone sees any lasting impact from Tuesday鈥檚 deal, , program director for economic statecraft, sanctions and energy markets at the Center on Global Energy Policy.
One reason, Mr. Nephew wrote in an analysis, is the 鈥渆xtensive procedure鈥� for gaining the support of home legislative bodies: In the US, a skeptical Congress will have to receive the text of the deal, hold hearings, and decide what to do. Then there are challenges facing Iran in terms of implementing the scaledown to its nuclear program.
鈥淚ran鈥檚 nuclear list is long,鈥� according to Nephew. 鈥淸A]ll of this work will not even start until after 90 days from today (the end of October) and it will take months from that point to fully execute the remaining changes to Iran鈥檚 nuclear program.鈥�
He added: 鈥淢arkets should be wary of overly optimistic estimates of Iranian oil production. And international energy companies, eager to invest in Iran鈥檚 formidable reserves, should perhaps be the most cautious.鈥�
