The nuclear agreement between Iran and six world powers will naturally have consequences for global oil markets as Iran eventually exports more oil again. Before the Iranian Revolution, the country was the world's third-largest oil producer. Prior to the implementation of sanctions in 2012, Iran was a major crude oil and condensate exporter to Asia, Europe and others — in fact, exports totaled 2.6 million barrels per day in 2011. Today, that figure has fallen by almost 600,000 bpd to Europe and another 600,000 bpd to Asia. Iranian exports now hover closer to 1.4 million bpd, 1 million bpd of which is crude oil.
The July 14 deal paves the way for sanctions to be relaxed by early 2016, enabling anyone to buy oil from Iran. While Iran maintains that it can increase oil production by 500,000 to 600,000 bpd within one month of the removal of sanctions and increase exports to 2.5 million bpd within three months, Stratfor sees these figures as overly optimistic. Iran does, however, have at least 35 million barrels of crude oil and condensate in storage that it could use to increase exports in the interim before its oil production rises again. 2016, consequently, will likely be another year where a healthy oil supply tamps down any oil price recovery.
There are, of course, potential obstacles to passing the deal, both in the United States and Iran. In the United States, President Barack Obama is wrestling with the Republican-controlled Congress, which could reject the deal. Congress has a 60-day review period to approve, disapprove or do nothing with the deal, in which case the agreement would go into effect. Obama has said he will veto any rejection of the deal, and Congress would find it quite difficult to assemble the two-thirds vote in the House and Senate needed to override the presidential veto.
Obama cannot lift sanctions or issue presidential waivers allowing countries and companies to skirt the sanctions during the 60-day review period, only after. The European Union, Japan and South Korea, meanwhile, can remove sanctions more quickly, most likely giving companies from these countries an advantage in investing in Iran. It is difficult to ascertain how much production capacity Iran actually has, and how expensive or difficult it will be to bring mature, largely inefficient fields back online, and all of this uncertainty has created wide-ranging expectations of how quickly production will increase.
