Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

The Iran Nuclear Deal is Mostly about Oil

Commodities / Crude Oil Jul 28, 2015 - 02:11 PM GMT

By: John_Browne

Commodities

The recent nuclear non-proliferation agreement between Iran and the U.S. has created a firestorm debate in the Middle East and both sides of the Atlantic. While the deal is supposedly all about nuclear power and nuclear bombs, its practical implications are all about oil. But the conclusions we should make about its impact on the energy sector are far from clear. A ratification of the deal would allow Iran to make lucrative long term production and distribution contracts with foreign energy firms. However, freely flowing oil from Iran would add significant new oil supply into the world markets, disrupt U.S. plans to become an energy exporter, and could potentially put further downward pressure on prices.


The U.S. Energy Information Administration (EIA) reports Iran's proven oil reserves as the fourth largest in the world, at 158 billion barrels, or about 10% of the world's crude oil reserves. It also has the world's second largest reserves of natural gas (Oil & Gas Journal, January 2015). But as a result of the series of sanctions laid on Iran by the United States and the United Nations for Iran's failure to abide by nuclear inspections, which have essentially blockaded the nation, these reserves have done little good for the Iranian economy or the theocratic Muslim government that holds the country in its tight grip.

The IMF estimates that Iran's oil and natural gas export revenue had been $118 billion as recently as 2011/12. But by 2012/2013 revenues fell by 47 percent to $63 billion. Revenues declined another 10 percent in 2013/14 to $56 billion (Islamic Republic of Iran, Country Report, April 14, 2014). By May 2015, Iran's daily oil production had fallen from 4 million barrels in 2008 to just over 2.8 million barrels.

It goes without saying that the removal of the sanctions regime will allow Iran to resume exports at levels seen in the past. And if Iran is true to its word, and that its nuclear program is indeed focused on the development of nuclear power plants, then it is likely that its domestic demand for fossil fuels will fall, thereby allowing for even greater exports.

The first issue regarding Iran's new oil flow is how easily will it be able to reestablish its former customer links and sell its oil, regardless of increased production. Having destabilized the Middle East by killing Saddam Hussein, the U.S. may wish now to leave the areas' nations alone to sort out the resulting mess. Into this void we can be sure that the Chinese and Russians will stride forcefully and deliberately.

Even if Iran is successful in regaining former customers, and selling down its inventory, how quickly can its production be increased? The Iranian oil infrastructure has been neglected for years and Iran needs to rebuild it desperately. Fortunately, Western expertise in energy development is by far the most advanced, which will give Western interests a leg up on Chinese and Russian rivals. But Chinese cash and strategic support may prove decisive.

Reuters reports that, in the opinion of 25 economists and oil analysts, Iran could be able to increase its oil production by up to 500,000 barrels a day this year and reach 750,000 a day by mid-2016. This will add to a current global oversupply of some 2.6 million barrels a day.

Meanwhile, as the price of oil remains relatively depressed, production wells in the U.S. and other producing nations, planned and established when oil prices were much higher, are drifting off stream. Finally, there is increasing evidence that recession may be felt internationally, reducing at least the rate of growth of oil demand if not the absolute level of demand in some countries.

Today's oil market faces a global supply overhang and price weakness. Iran's new oil production and exportation is not likely to come on line for at least a year or two, provided the treaty is ratified. But when that oil does start to flow, the new supply could add to downward price pressures. However, the amounts are unlikely to greatly affect the totality of the global marketplace and by that time whatever inflationary effects there may be of continued monetary expansion in America and Europe should act as a stronger force pulling prices upward.

In total then, the return of Iran to the global energy market should have a beneficial effect on the global economy, both in pushing down prices and providing lucrative development work for oil companies around the world. However, the economic aspects of the deal are largely insignificant in comparison to the geopolitical ramifications.

President Obama's nuclear arms deal leaves open to debate whether Iran will become a nuclear power within the next decade, if not earlier. Unleashing a nuclear arms race in a highly unstable area of the world would render oil supplies sourced from there considerably less secure and unattractive, possibly even at lower prices, to consumer nations, including the 500 million strong EU.

The deal will also threaten the longstanding alliance between the United States and Saudi Arabia. The implicit arrangement between the two countries has always been that the Saudis would direct the lion's share of its oil exports to the United States in exchange for American support of regional Saudi security interests. Shiite dominated Iran has always been one of Sunni-led Saudi Arabia's top concerns. If the U.S. and Iran drift closer together, Saudi Arabia will surely seek other partners who are more supportive of its interests.

No one knows what such a Middle East will look like. But given the volatility of the region, change is unlikely to be pretty.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules