Oil prices fell following the breakthrough accord in Geneva that limits or freezes parts of Iran's nuclear activities. In exchange for curbing Iran’s nuclear program, the deal will ease some of the crippling economic sanctions that have caused massive inflation in Iran and weakened its currency. Although the deal is preliminary, analysts believe investors are optimistic it could eventually lead to an increase in the world’s oil supply.
Oil futures dropped, the dollar traded higher and European airline stocks soared as the agreement between Iran and six world powers raised expectations for a thaw in tensions between Iran and the West.
Although Iran’s output of crude oil is not expected to change soon, energy analyst Miswin Mahesh thinks the interim deal has eased global fears about the slowdown in oil production.
“It does help the oil market because otherwise, going into next year, we still have massive outages, Libya is off the market by 1.4 million barrels per day, Iraq is off the market by 300,000 barrels per day and on top of that, Iran is also reducing,” said Mahesh.
As it stands, the agreement limits Iran’s oil exports to one million barrels per day, but market analyst Mike Ingram said that the hope is that the easing of sanctions will eventually make it easier for Iran to sell its oil on world markets.
“Lower oil prices are good for global equity and at the economic level they are good for every single country outside of the Middle East and Nigeria,” said Ingram.
Key stock indexes in the U.S. and Europe advanced on the news, while markets in Asia were mostly higher. While many industries would benefit from lower fuel prices, Nick Lewis at London Capital Group notes that other winners will include companies that stayed behind in Iran, even after economic sanctions were put in place, such as French carmakers.
“Renault and Peugeot, Peugeot in particular, who had a presence in Iran prior to the restrictions that were put on in 2011, [will benefit],” said Lewis.
Analysts say the easing of sanctions could help restart Iran’s automotive sector, allow petrochemical exports to expand and renew the country’s access to billions of dollars in trade.