Global oil prices took a nosedive on Sunday, bringing oil below $30 a barrel for the second time this week. With sanctions being lifted following the July 2015 Iran nuclear deal, the Islamic Republic prepares to resume crude oil and gas exports, adding an estimated half a million barrels of oil a day to the global oil market according to Deputy Oil Minister Amir Hossein Zamaninia, quoted in The Guardian.
As previously covered by Inquisitr, the Iran nuclear deal framework was reached on July 15, 2015 with six world powers, including the five permanent members of the United Nations Security Council (the U.S., the U.K., Russia, France and China), plus Germany, a collective of countries known colloquially as the P5+1. The High Representative of the European Union also took part in the accord. The agreement included the lifting of the severe economic sanctions placed on Iran as a result of its nuclear program in exchange for Iran giving up roughly 98 percent of its low-enriched uranium, eliminating its stockpile of medium-enriched uranium and reducing its number of gas centrifuges by two-thirds for 13 years.
With the recent report made to the United Nations by the International Atomic Energy Agency (IAEA) inspectors, who confirmed Iran has been acting in accordance with the agreement, Iran is poised to recapture some of the international diplomatic and economic relations it lost in the fires of nuclear proliferation. Iran will continue to face difficulties in returning however, including restrictions on imports and banking. Sanctions, also, will not be lifted overnight.
According to the International Business Times, the return of Iran to oil exporting comes at a time when competition is very sharp among petroleum-exporting states.
“Iran’s return to production came amid a worldwide oil glut. Exceptionally good production in the Middle East, coupled with the shale boom in the U.S., have put supply very high while demand from emerging markets has shrunk. The supply and demand imbalance has pushed the price per barrel to 12-year lows, plunging to $30 per barrel in early January.”
Oil prices have now fallen back to their 2004 lows. Bloomberg Business posted a tweet showing Saudi stocks falling in response to Iran becoming a major oil competitor again. Saudi Arabia’s stock exchange fell over 6% among worries of Iran flooding the market with more oil in the midst of a production glut.
The impact is not limited to Saudi Arabia however – share markets, particularly those in oil-rich states in the Gulf and the Middle East, took a sharp tumble on Sunday. It’s also worth noting that oil prices have fallen by 70% in the last 18 months in the context of record production and softening global demand, particularly given the slowing of economic growth in China, the world’s largest energy consumer.
Economic analysts of BBC News predict that additional Iranian exports “would add to the 1 million barrels a day of over supply that has led to a more than 70 [percent] collapse in oil prices since the middle of 2014.”
They estimate a million extra barrels of oil are being produced each day, though analysts also mention that the lifting of Iranian sanctions could have relatively little impact on the already-falling prices, as it was largely anticipated. According to the BBC, those most hurt by the oil markets are large oil sellers and producers like Russia, Venezuela, Saudi Arabia, Nigeria and other OPEC countries, while those that benefit include oil buyers and importers, including the Eurozone, as well as farmers and average consumers.
Iranian President Hassan Rouhani welcomed the end of Western sanctions, calling it a “glorious victory” and a turning point for the Iranian economy according to The Guardian. However, he also hinted that Iran may be looking to leave its economic reliance on oil and gas exports behind, calling this an opportunity to cut the “umbilical cord” to oil.
[Photo by David McNew/Getty Images]