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All News » Western & Iranian Negotiators Finalise Preliminary Agreement

Western & Iranian Negotiators Finalise Preliminary Agreement

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Negotiators from Western countries and Iran have come to a preliminary agreement on Iran’s nuclear programme after an eight-day negotiation process in Switzerland. The agreement, should it be finalized at the end of June, will no doubt have a huge impact on the oil and gas industry. The effects may not be immediate, but long-term consequences are inevitable.

In the deal struck by Iranian and Western leaders, the EU will end all sanctions against Iran that are specific to its nuclear programme. The US will also end its sanctions if and when the final agreement is signed on June 30 and if the International Atomic Energy Agency (IAEA) can confirm that Iran has complied with its conditions.

Under the agreement, Iran will agree to limit all its nuclear enrichment facilities. Only the Natanz nuclear facility will continue; the remaining nuclear plants will be given another purpose. The nuclear plant at Fordow will become a centre for nuclear technology, and the Arak plant will become a heavy-water research reactor unable to produce plutonium suitable for weapons use.

Current Sanctions

At present, there are twelve sanctions targeting the Iranian oil and gas sector and a further twenty that target Iran’s financial sector. Consequently, it is extremely difficult to trade with Iran. Whilst the preliminary framework agreement does not specify when sanctions will be lifted and in what order, it does stipulate that all EU sanctions relating to nuclear energy will be lifted if a final agreement is reached. The US has also agreed to do the same when an inspection team from the IAEA confirms that Iran has complied with the requirements of the deal.

Oil Prices Could Fall Further

One million barrels of oil could be added daily to the global market following the lifting of sanctions, according to Iran’s minister for oil, who was speaking in March. Others estimate that in between 0.5 and 0.8 million barrels per day will be added immediately. The global oil market is already over-supplied by almost 2 million barrels per day. Iran currently supplies up to 3 per cent of the world’s oil – around 2.8 million barrels per day. Before the 2012 sanctions, 2.5 million barrels of this was exported, but this has since reduced to 1.3 million b/pd. Should Iran add another 1.5 million b/pd to the market, oil prices are likely to fall still further.

How Likely Is a Final Agreement?

Although the preliminary agreement between Iran and the West has been reached, the US is still a long way from ratifying the final agreement. John Boehner, the US Speaker of the House, has said that the parameters agreed in the preliminary discussions are an ‘alarming departure’ from the White House’s initial requirements. A lengthy legislative debate is likely to ensue which could delay the lifting of US sanctions indefinitely. It is not clear what impact lifting of the EU sanctions alone would have on Iran’s oil and gas sector.

Iran’s oil ministry has met with several international oil corporations in recent months, and this is likely to continue following the preliminary framework agreement as Iran invites multinationals into the country. However, given the uncertainty regarding the US Congress’s ratification of the final agreement and the current low price of oil, investment in the Iranian oil and gas sector is not necessarily attractive at present. Its oil fields are ageing, and the sector has been starved of investment for more than ten years. Whilst there are untapped oil fields, Iran lacks the capital to develop them.

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