The framework agreement over Iran’s nuclear program could lead to a deluge of Iranian oil on the global market, with the potential to drive oil prices down farther than they’ve already plummeted.
But it won’t happen soon. Even if the deal outlined Thursday doesn’t fall apart before the details are worked out, it’s likely to be at least a year before international sanctions against Iran are lifted to allow its oil to be shipped, according to energy experts.
“I am not very optimistic that we’ll see this massive flood of Iranian oil on the market anytime soon,” said Phil Flynn, senior energy analyst for the Price Futures Group.
The eventual impact of letting Iranian oil on the market would be huge. Iran holds the world’s fourth-largest proven oil reserves, but its production has dropped because of the sanctions, especially a European Union ban on importing Iranian oil. Iran exported 2.5 million barrels of oil a day before the sanctions were imposed. It’s now down to 1.1 million.
Iran is desperate to ease the sanctions, as crude-oil exports account for 85 percent of its government revenue, according to a report from Roubini Global Economics, an analysis firm. It’s storing millions of barrels of oil on supertankers in the Persian Gulf, just waiting for permission to sell.
“If the sanctions were lifted today it would have a major impact,” Flynn said. “They have miles of tankers filled with oil. It would be like a fire sale into a global market already oversupplied with oil.”
The nuclear agreement with Iran, though, is just a framework, with the specifics to be negotiated by June 30. The unresolved details include the exact process for lifting sanctions and, given earlier delays in the talks, the negotiations might drag beyond the deadline.
Analysts said the deal also appears to demand that before the sanctions are lifted the International Atomic Energy Agency must certify that Iran is complying, including allowing inspections and removing centrifuges used for nuclear enrichment. It’s not clear how long that would take.