Iran signed a historic agreement with the six global powers including the U.S., Britain, France, Russia, Germany and China on Sunday. After intense negotiations, Iran agreed to temporarily freeze its nuclear program for a partial relief from sanctions. The deal bought the oil-rich nation six months of time to negotiate a long-term deal. President Barack Obama welcomed the agreement. He said it would prevent Iran from producing nuclear weapons. But Republicans and the key U.S. ally Israel criticized the nuclear deal.
Iran’s uranium enrichment capped at 5%
The agreement requires Iran to immediately freeze all uranium enrichment at medium-grade or 20% purity. Medium-grade uranium can relatively easily be enriched to produced weapons. The country will also provide better access to inspectors from the United Nations. Iran can now enrich uranium only up to 5%, which is much lower than weapons-grade. Furthermore, the country agreed to neutralize its existing stockpile of uranium of more than 5% enrichment. In return, the global powers will suspend the current sanctions on auto parts, petrochemicals and gold.
What if Iran strikes a long-term deal?
The landmark nuclear deal had an immediate impact on global oil prices. Brent crude fell $2.35 to $108.71 per barrel on Monday after the deal. Though it has recovered to $110.87 on Tuesday, analysts believe the prices to decline in the short-term. A future deal would allow Iran to restore its oil production to pre-sanction levels, bringing down oil prices. Full production of oil by Iran would add at least 1 million barrels every day to the global markets. The deal should also erode tensions between the West and Iran that have been a key reason behind the increase in oil prices over the past few years.
A ClearView Energy Partners analyst, Kevin Book, estimates that Brent crude prices could decline to $90 per barrel by the end of 2014 if Iran strikes a long-term, comprehensive deal with the West.