Iran and P5+1 leaders announced on July 14 that a nuclear deal has been reached, which should lead to the gradual lifting of trade sanctions against the ostracised nation.
“After two years of negotiations, the United States, together with our international partners, has achieved something that decades of animosity has not — a comprehensive, long-term deal with Iran that will prevent it from obtaining a nuclear weapon,” announced US President Barack Obama yesterday.
Negotiating parties welcomed the news, particularly Iran, where people waved flags in celebration on Tehran’s streets. But in the rest of the Middle East, mixed reactions were indicative of geopolitical tensions. While Syria President Bashar al-Assad hailed the deal as “a great victory”, Israeli Prime Minister Benjamin Netanyahu – a long-term opponent of the negotiations – called it “a stunning historic mistake”.
And in Saudi Arabia, where Iran’s talks with the west were seen as a threat to the country’s place as the US’ main Middle East ally, comments were cautious, citing hopes for better relations and “non-interference”.
The oil market reacted strongly, with Brent prices falling by US$1.15 to US$56.70 a barrel upon the announcement. Prices later bounced back to about 1% above their pre-deal levels, at US$58.42 for Brent and US$52.86 for West Texas Intermediate, probably due to the realisation that it will take time for Iranian oil to hit the market.
“Although the deal will present foreign oil and gas companies in particular with a broad range of opportunities, the operating environment in a post-sanctions Iran will almost certainly remain challenging. While Iran has committed to improving the fiscal terms offered to oil and gas companies, the country’s petroleum bureaucracy remains bloated and inefficient,” says Torbjorn Soltvedt, deputy head of Mena at Verisk Maplecroft.
Still, analysts have revised down their oil price predictions, with Natixis expecting Brent to average US$60a barrel in Q3 2015 and drop to an average of US$57 a barrel by Q1 2016.
According to IHS, trade sanctions are likely to be the first to be removed, and third-party countries such as India, South Korea and South Africa, which had imposed their own sanctions on Iran due to US pressure, are likely to lift sanctions in the coming weeks.
John Forrest, head of the global trade practice at DLA Piper, explains: “Initial indications are that sanctions will be eased in areas including oil and gas trading, financial transactions, aviation and shipping. It is also expected that a significant volume of Iranian assets currently blocked by the international community will be unfrozen. As ever, the devil will be in the detail.”
In any case, President Obama has made it clear that the sanctions removal will be phased in, and that any Iranian violation of the deal will cause them to be snapped back into place.
But the process of ratification of the agreement still faces some hurdles, particularly in the US, and possibly in Iran, where Supreme Leader Ayatollah Khamenei, who will have the last say domestically, has so far kept his opinion on the deal to himself, and where there are concerns that the hard-line Revolutionary Guard might want to derail the legislation.
In the US, Congress will have 60 days to review the agreement (instead of 30 if it had been signed before July 9), but President Obama has already announced his intention to veto any effort to prevent its implementation.
“By opting not to treat the agreement with Iran as a formal treaty – which would have required a two-thirds majority in the Senate for approval – President Obama has ensured that the agreement cannot easily be overturned. His Republican critics would first need to muster 60 votes in the Senate to prevent a filibuster of the resolution of disapproval. If they manage to achieve this step, a further seven votes would then be required to gain the two-thirds majority required to overturn the almost inevitable presidential veto of the disapproval resolution,” Marc McClelland, principal North America analyst at Verisk Maplecroft, comments.
However, US law gives Congress a right to ask for certification that Iran is still fully complying with the agreement every 90 days, meaning that whoever succeeds President Obama will have access to an easy mechanism to cancel the deal.