Iran’s Nuclear Deal Means and the Global Crude Oil Market

The nuclear accord reached in Vienna on Tuesday could eventually reshape global oil markets. After almost two years of talks, the holder of the world’s fourth-biggest crude reserves will benefit from an easing of international sanctions on exports in return for curbs on its nuclear program.

Iranian Oil Minister Bijan Namdar Zanganeh says the country can increase exports by 500,000 barrels a day as soon as sanctions are lifted, then an additional 500,000 a day in the following six months. Iran produced an average of 2.8 million barrels a day this year.

Goldman Sachs Group Inc. says adding 500,000 barrels a day will take about a year because Iran must first demonstrate its compliance with the terms of the nuclear accord and revive aging wells. Further expansion will need foreign investment, BNP Paribas SA says. The country also has 30 million barrels stored on tankers that it could ship more quickly, according to Bank of America Corp.

What is Iran’s Potential?

Iran’s oil reserves are estimated at 157.8 billion barrels by BP Plc. That’s enough to supply China for more than 40 years. The first crude deposits found in the Middle East were discovered in Iran in 1908, and the country was pumping 6 million barrels a day seven decades later.

Capacity has since declined as Iran’s wells have been deprived of sufficient investment and advanced technology to offset falling reservoir pressure. Western oil companies have mostly been absent since the 1979 Islamic Revolution.

Zanganeh presented his 11 OPEC counterparts with a letter at their meeting last month saying they should prepare for Iran’s return.

More Iranian crude could amplify Saudi Arabia’s strategy of pressuring producers with the highest costs while also increasing competition among OPEC members for Asian customers.

Global markets are already contending with an oversupply that International Energy Agency data indicates will be about 800,000 barrels a day in the second half. Brent crude is currently forecast to rebound to an average of about $67 a barrel in the rest of 2015, according to analyst estimates compiled by Bloomberg, as U.S. supply growth slows.

Which Markets Will Iran Target?

Iran’s priorities are Asia and then Europe. Iran’s Asian trade was mostly taken by Saudi Arabia and Kuwait, whose crudes are chemically similar, according to the U.S. Energy Information Administration. In Europe, Iranian oil was displaced by Russia, Saudi Arabia and Iraq.

Crude exports of about 1.1 million barrels a day have continued to buyers granted exemptions by the U.S.: China, South Korea, Japan, India, Turkey and Taiwan. India will gain as its refineries are equipped for Iran crude.