Traders work on the floor of the New York Stock Exchange July 14, 2015.
Traders work on the floor of the New York Stock Exchange July 14, 2015.

Global oil prices dropped, then advanced Tuesday as traders weighed the prospect of a flood of new Iranian oil on the world market, after Tehran and six world powers agreed to restraints on Iran's nuclear development program.

Brent crude, sold through much of the world, dropped 2.3 percent in the hours after the deal was announced in Vienna, but later recovered to move up slightly to $58.23 a barrel.  Early on, the price for U.S. benchmark oil declined two percent, but later rose more than a percentage point to $52.88.

Iranian oil exports have been crippled in the face of 2012 economic sanctions imposed by the United Nations, the United States and other Western powers to pressure Tehran into negotiating a deal to block its development of nuclear weaponry.  But with the new deal, the sanctions would be lifted over time, if international inspectors verify that Tehran is complying with the agreement.

That could, within months, open the world oil markets to hundreds of thousands of barrels of Iranian oil each day, which in turn could keep oil prices at their current low levels or push the price of crude down even further.

4th largest reserves

Iran, with the world's fourth biggest reserves of crude oil, has been producing 2.8 million barrels a day this year. But Iranian Oil Minister Bijan Namdar Zanganeh says that as soon as the sanctions are lifted, Tehran could send another 500,000 barrels to the world market that is already awash in oil, and then an additional 500,000 barrels a day in the six months after that.

British oil giant BP estimates Iran's oil reserves at nearly 158 billion barrels, enough to supply China, a vast oil consumer, for 40 years.  Zanganeh said in May that Iran would target Asia and Europe for new oil sales, the two continents where the sanctions curbed oil deals the most.

One London-based sanctions lawyer, Sarosh Zaiwalla, told Reuters, "The prospect of [sanctions] being lifted is creating great excitement ... as foreign trade and investment will allow Iran to make huge efficiencies and drive down the cost of [oil] production."

European energy companies Eni and Total worked in Iran before the sanctions and say they are eager to return, with BP, Royal Dutch Shell and Exxon Mobil also expressing interest in Iranian oil operations.

Potential boost in fortunes

The sanctions have hobbled the Iranian economy, but lifting the sanctions could markedly boost its fortunes, opening the door to new international investments and robust Iranian consumer spending.

Business analysts Charles Robertson and Daniel Salter at the investment bank Renaissance Capital said Iran is the most important world market closed to global investors.  But they said that could change in early 2016 if the sanctions are lifted.

"We are confident that Iran opening up will be one of the most interesting and positive developments for the emerging and frontier market asset class in many years," the analysts said.

Commercial sales

Major foreign companies are eyeing sales to the Iranian government, along with its 80 million consumers.  Iran's transport minister says the country needs to replace 400 aging jets during the next decade at a cost of at least $20 billion.  The Vienna deal will also eventually free $100 billion in Iranian cash accounts that have been frozen in foreign banks.

Automakers Renault and Peugeot have restarted talks with Iranian partners to renew sales, and American auto manufacturers could also join Tehran's market.

European dairy products could also be sold again in Iran, whose consumers are fond of feta cheese from northern Europe.  Euromonitor predicted that dairy sales could reach $18 billion by 2020, a nine-fold increase from 2010.  

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