Iran Deal May Be Slow to Affect Oil Sector

The breakthrough in nuclear talks with Iran on Thursday has the potential to cause a seismic shift in global energy markets over the long term, but energy experts said any appreciable impact on an already glutted global oil market was highly doubtful for at least six months and probably more than a year.

Since the European Union placed sanctions on Iranian oil in 2012, Iranian exports of crude have fallen by more than a million barrels a day — more than 1 percent of the daily global market. At a time when there is a daily excess of nearly two million barrels of supply on the world market, another million barrels a day would put further pressure on world crude prices — which have fallen about 50 percent since June.

While the agreement reached in Switzerland was tentative, the news led traders to sell oil futures and the price of the global Brent benchmark declined by nearly 4 percent, falling below $55 a barrel. Iran has as much as 20 million barrels of crude in storage — more than what the United States consumes in a day — that it could potentially release on the market.

The lifting of oil sanctions has been one of Iran’s main objectives because its economy is highly dependent on oil sales, and sanctions have caused cancellations and delays in oil exploration and production projects.

“The framework agreement lays out a path to significantly increase Iranian oil exports over time,” said Michael Levi, an energy expert at the Council on Foreign Relations. But he added, “You want to know how many barrels will come out of Iran next week? Zero.”

The agreement does not detail which of an intricate web of financial, oil and travel sanctions will be removed first and in what order they will be lifted. And before Iran can begin to significantly add to world supplies, the United States and its allies will need to be convinced that Tehran is living up to its commitments under the tentative agreement.

Verification could be a time-consuming process, energy experts say, since modifying nuclear equipment, dismantling centrifuges and carrying out detailed inspections can take months.

New York Times