Iran, the Next Promise Land - July 26, 2015

Iran, the Next Promise Land

After long years of conflicts, Iran and the international community struck a deal to curb Iran’s nuclear programme. The UN can now send inspectors to the facilities, which was as a matter of fact, the reason a few years back for the animosity between the United States and the Islamic republic. In exchange, Iran asked for economic isolation and international sanctions relief. And the West is gradually lifting the sanctions.

One of the most important impacts of this is that Iran will be able to sell crude oil to the West. The country stocks the 4th largest oil reserve of the world so this accord can result in new oil price fall (which has already started in a way), increasing the current surplus.

Since 2012, Iran cannot export crude oil to European Union either. Because of the United States’ imposed sanctions, it is currently almost impossible to buy oil in dollars on the market. The country’s crude output has dramatically dropped from 3.8 million barrels per day in 2011 to 2.8 million barrels per day in 2014. As a result of the agreement, Iran will be able to pump an additional 1 million barrels per day of crude but the full recovery might only be expected in the beginning of 2016.

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Everybody is waiting for the Iranian oil

Anyhow, the oil giants are awakening and oil refineries are eager to have Iranian oil, such as Hellenic Petroleum where 25 percent of the crude had come from Iran before the imposed sanctions, replaced now by Russian oil that was 30 percent of the oil import of the first half of 2015.

The agreement can mostly disturb Russia as its economy is based on raw material export, and Russia is geographically close to the countries where Iran used to export oil, which allowed them to react fast to these imposed sanctions. Russia’s export to Europe and to Asia (which was Iran’s two main export markets) doubled between 2011 and 2014, pumped by 420,000 barrels per day the output. If, from now on, Iran returns to these markets, Russia will lose them. Besides, a possible price fall will also hit the country.

Consumer goods producer multinational companies are also glad

Iran’s population counts 80 million people. This huge market has great opportunities. Not only the oil industry expects new, rewarding businesses after lifting the sanctions but also the companies producing consumer goods. According to Bloomberg, Coca-Cola, Pepsi, Danone, Nestle, Peugeot, Airbus, Louis Vuitton, British American Tobacco are among the biggest winners of this story.

The same will happen to the European food companies. They can finally be relieved as they suffered the most from the Russia’s embargo imposed as a revenge for sanctions for backing insurgents in Ukraine.

Criticism and risks

Many criticise the agreement saying that Iran can still be dangerous and build a nuclear weapon because it has all the knowledge and resources to let them do so. Iran also needed this green light to return to the international economy and attract new investments to the country. The country needs revenue in dollars and developments which is in the West’s interest as well. However, there are still some risks. For example, American Republicans who are in control of the Congress have already announced that President Obama can prepare for a battle if he wants their approval.