May 19, 2015


How an Iran nuclear deal means cheaper oil and why Tehran is OK with that (Jan H. Kalicki May 12, 2015, Reuters)

New investments and higher exports are big incentives for Tehran to reach a nuclear deal. The Iranian economy has been in a tailspin under the sanctions regime. It can recover only with greatly increased oil and gas exports, even at low prices.

Under favorable scenarios, Iran could increase its sanctions-constrained oil exports of 1.2 million barrels a day by about 300,000 barrels a day, drawn from its floating storage. That could add 1 million barrels a day to global supply within 12 months to 18 months. Low global growth forecasts indicate that this prospect would add, longer term, to downward pressures on oil prices -- good news for consumers and challenges for producers.

For Tehran's traditional rival, Saudi Arabia, the additional oil on the market would not be welcome. But the kingdom can be expected to maintain its policy of defending its market share, even at lower prices.

Iran would also likely accept lower prices in return for badly needed revenues and as a means to rebuild its share of the global oil market. Tehran would likely need an increase of tens of billions of dollars each year to reverse the 15 percent rate of decline in output from its aging fields.

The geopolitical consequences of ending sanctions against Iran would be at least as important. As Iran re-enters the nonnuclear energy market, its incentives to develop and defend its market share would increase. In parallel, its incentives to stick to a nuclear accord would also increase to avoid any possibility that sanctions might be reimposed.

Tehran has made it clear that ending sanctions has been the single most important impetus to making a nuclear deal.

US poll: Many approve Iran deal, but most don't trust Tehran (LOLITA C. BALDOR AND EMILY SWANSON, May 12, 2015, AP)

An Associated Press-GfK poll found that just 3% said they were very confident that Iran would allow inspections of its nuclear facilities, remove plutonium from the country and shut down close to half of its uranium-enriching centrifuges as the preliminary deal says would be required. [...]

Although more than half of Americans polled said they approve of making the deal, few people -- 16% -- were actually paying close attention to the complex Iran negotiations that have angered Israel and unnerved Gulf nations who are concerned about Tehran's rising influence and aggressive behavior in the region.

Posted by at May 19, 2015 5:25 PM

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