Oil prices drop after Iran nuclear agreement reached

Oil prices have dropped after an agreement between Iran and many of the world’s powers was recently reached.

Whilst Iran is to curb some of its nuclear activities, the latter powers are to ease international sanctions.

Iran has consistently maintained its nuclear programme is not aimed at developing a nuclear warhead, yet world powers have long suspected that is the secret goal.

The interim nuclear deal is a large step toward resolving the dispute over Iran’s nuclear progress.

Amongst many new nuclear measures, Iran is expected to:

  • Stop enrichment of uranium above a certain purity
  • Defuse its store of 20%-enriched uranium
  • Not install/build any more centrifuges/enrichment facilities
  • Halt construction of its reactor at Arak, and provide information on the reactor

Oil wealth

The country boasts the world’s fourth-largest oil reserves, yet exports have been regularly stifled by international sanctions led by America.

In November 2011, Washington threatened to cut off financial institutions which led oil transactions with Iran from the US financial system; prompting China, Japan and India – amongst many others – to cut their imports.

Now, these sanctions have been lifted to a certain extent, and whilst Iran cannot increase its oil sales in the coming half year, tensions have eased in the Middle East.

Brent crude – a sweet light crude oil – fell over 2% in early Asian trade at the start of the week; dropping to USD 108.63 per barrel (a drop of USD 2.42).

Meanwhile, American light sweet crude fell USD 0.84 to USD 93.64 per barrel.

If Iran keeps to the guidelines, they will begin to re-enter the global economy, before re-joining the oil sector in six months.

Knee-jerk reaction

Although the deal has given hope of a long-term agreement eventually leading to an increase its oil sales from Iran, some analysts predict the world is likely to see further declines in price.

As a recent development, “there is some knee-jerk reaction,” said Market Analyst Ben le Brun, of Australia’s OptionsXpress.

He added “The market will probably want to see the … details of the agreement before we see any further significant declines in prices.”

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