World powers announced Sunday a timeline for implementing an Iran nuclear deal that would ease economic sanctions on the Islamic Republic in exchange for its moves to limit uranium enrichment. The Iran nuclear deal gives the energy-rich country sanctions relief valued as much as $7 billion over the course of six months.
Oil prices slipped Monday with investors optimistic about new access to Iran's substantial oil and gas wealth. The Iran nuclear deal is progress toward bringing Iran oil online, but the relief set to take effect Jan. 20 is limited. The next six months will be less about opening up Iran's oil markets than it is about stopping efforts to close them.
"This is the first step in many ... a fuller return of Iranian oil is months, if not years, away," Andrew Lipow, president of Lipow Oil Associates in Houston, says in a telephone interview. "It’s not like the taps are going to be open, by any stretch of the imagination."
Under the agreement, the US will pause efforts to put sanctions on Iran's petrochemical exports, according to the State Department, and allow the six countries who currently purchase crude oil from Iran to continue doing so.
Those countries, which include India, China, and South Korea do not need to reduce their import levels, as had previously been the case, but they cannot increase them. A violation of the deal's terms would cancel the agreement.
"The core architecture of the US and international sanctions remains in place," a senior administration official said during a conference call hosted by the State Department Monday, "and we will – as we have – continue to vigorously enforce those sanctions as well as sanctions that relate to Iran’s support for international terrorism and its gross human rights abuses[.]"
The State Department projects Iran's oil exports will remain at about a million barrels per day. That's down 60 percent from the 2.5 million barrels a day Iran exported at the beginning of 2012, before the US initiated a push to slow sales of Iranian oil.
Iran holds the world's fourth-largest proven oil reserves and the world's second-largest natural gas reserves, according to the US Energy Information Administration. International sanctions have stymied the foreign investment Iran needs to develop its 154 billion barrels of proven oil reserves and its massive offshore natural gas fields in the Persian Gulf.
The agreement hasn't stopped 59 US senators from signing onto the bipartisan Nuclear Weapons Free Iran Act, which would impose stricter sanctions on Iranian energy. It needs 60 votes to pass, and President Obama has said he would veto the bill.
"Now is the time to give diplomacy a chance to succeed," Mr. Obama said in a written statement Sunday. "Imposing additional sanctions now will only risk derailing our efforts to resolve this issue peacefully[.]"
News of a Iran nuclear deal sent US crude oil down 89 cents Monday morning to $91.83, nearly two weeks after opening the year at $98.50. Average US gas prices were steady at $3.31 Monday, down half a cent from a week ago.
If tensions continue to ease, industry watchers expect additional sanctions to be lifted. A significant increase in Iranian oil exports would ripple across a global energy market that has already been flipped on its head by a North American oil and gas boom.
"The return of Iranian oil and the return of Libyan oil – If those were to happen in the near term, there would be pressure on [the Organization of Petroleum Exporting Countries], or the remaining members, to accommodate the return in production," Mr. Lipow says.