Impact of lifting Iran nuclear sanctions on oil prices

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Anindya Kumar Saha, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Officials from the EU and IAEA announced on Saturday that international economic sanctions against Iran were lifted after Iran completed the necessary steps that were to be taken to restrict its nuclear program.

One of the major impact of lifting the sanctions can be on the oil prices which continues to slip and is below $30 a barrel, touching an all time low since February 2004. As the economic sanctions are lifted Iran can now export as much crude oil as it can to the world.

Iran has the fourth largest oil reserves in the world. It is likely that with the sanctions lifted Iran will largely increase its crude oil production. It is expected that Iran will increase it’s oil production by 500,000 barrels a day. In an already oversupplied oil market this will drive the prices further down.

Saudi Arabia is the major leader in terms of oil production. It has already stated since the Opec meeting in November 2014 that it would not curb its oil production to boost the oil prices unless countries such as Russia, Iran , Iraq do so. With the ramping up of tensions between Saudi Arabia and Iran ,it is unlikely that Saudi Arabia will curb its oil supply and lose its market share as Iran ramps up its production.

This will only lead to a price war between Saudi Arabia and Iran .Also, with the weakening demand of oil in China and emerging markets the fear of oil prices hitting $20 a barrel is increasing. With oil firms like BP already announcing 4,000 job cuts the situation is getting more and more grim.

Reference:

http://www.bbc.com/news/business-35293332

http://www.bbc.com/news/business-35245133

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