Momentum seems to be growing in talks over Iran’s nuclear programme as negotiations between Iran and the so-called P5+1 continue today. Further progress could mean an easing of the sanctions on, among other things, Iran’s energy trade.
An easing of sanctions on Iran would likely have a negative effect on the oil price through increased supply and a lower geopolitical premium.
Iran and P5+1 nuclear talks set to continue
Talks between Iran and the so-called P5+1 (consisting of the US, France, Britain, Russia, China and Germany) resume today two weeks after the two sides failed to reach an agreement over Iran’s nuclear programme. The talks are expected to run through Friday.
Markets are likely to keep an eye on the negotiations in Geneva, as momentum seems to be growing. Even though the two sides were not able to strike a deal two weeks ago, the talks have been characterised as the most intensive in many years with high-ranking officials such as US Secretary of State John Kerry participating.
Another reason for optimism could be the fact that on the day after the last round of talks in Geneva ended, Iran signed a deal in Tehran with the International Atomic Energy Agency allowing greater access to some of Iran’s nuclear facilities.
Below we take a closer look at the likely consequences of a return of Iran to the global oil market.
Oil embargo weighing on the Iranian economy
Following the tightening of US sanctions and EU oil embargo which came into effect in July last year, Iran has had limited access to the global oil market. This has had significant consequences for the Iranian economy as it weighs heavily on the fiscal budget.
Oil production has declined steeply and at the current price on oil the fiscal budget is far from balancing. The fiscal breakeven oil price in Iran is estimated to be around USD150/bbl compared with around USD94/bbl in neighbouring Iraq and significantly higher than the current oil price of around USD106/bbl.
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