Good News For Motorists, We Think…

US Secretary of State, John Kerry (2nd from right), shakes on it with
Iranian Foreign Minister, Mohammad Javad Zarif (2nd from left).

It may be too early to say “historic”, but many of us are hoping that the breakthrough nuclear deal that will create transparency in the Iranian nuclear programme is just that – historic. To date, positions had been entrenched but with the new administration in Tehran, there was a rapid thaw in relationships and the oversight of the nuclear programme demanded by just about the rest of the world has now been agreed to. The world can move on with the potential that this agreement will remove the Middle East premium from oil prices and Iran, the country that is often described as the Germany of the Middle East, will start its long journey back on the road to recovery.

In trading immediately after the news broke, Brent Crude dropped USD2 per barrel and US Crude fell some 90 cents as investors and crude buyers salivated over the return of one of the world’s largest oil and gas reserves to the international market. All of the good news may be a little early though as the sanctions on oil and gas exports will not be lifted for another 6 months yet. So the initial drop is seen as a big sigh of relief, particularly with a relaxation of the tensions in the Strait of Hormuz.

Iran holds about 9% of the world’s oil reserves, claiming almost 150 billion barrels, and also the world’s largest gas field. (Further reading: It’s Official. The World Is MAD!) It is currently producing some 2.5 million barrels a day, which is down from its peak of 4 million barrels. But much of Iran’s ability to turn the taps on again will depend on the damage that has been done by the years of neglect and stagnation there. Historically, Japan, India, China and South Korea have been the biggest buyers of Iranian oil, all of which have had to reduce their energy imports by more than a third as a result of primarily US pressure.

How the return of oil exports from Iran trickles down to the rest of us remains to be seen, but it could be a bit of a game changer with much lowered oil prices pushing prices down at the pumps, making hybrid and electric vehicles a little less attractive. How we explore for fossil fuel may also be impacted and, in particular, the fracking business which needs a sustainable oil price of more than USD80 per barrel and will probably not welcome this landmark agreement. However, perhaps the biggest effect could be on the large oil exporters who have enjoyed artificially high prices for the past 3 years or more. They have grown accustomed to the USD100 or more per barrel prices and will find a hole opening up in their financial plans very soon.


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