Devil is in the detail

The extended negotiations in Lausanne that led to last week’s historic breakthrough on Iran’s nuclear activities meant the oil market was able to take a breath before reacting. News of the agreement came after many in Europe and the US had already departed for the long Easter weekend and it is only today that many first assessments are being made.

Ice Brent fell initially but recovered quickly, and although it is lower again today this is in the context of a sharp move higher in low holiday volumes yesterday. The sight of Iranian, US and EU officials sharing a stage may mark a significant shift in geopolitics but there is still a lot of talking to be done before this feeds into something more substantial for the oil markets. In the words of President Barack Obama, “nothing is agreed to until everything is agreed”, and the absolute deadline of 30 June is likely to be as flexible as the ones that passed in Lausanne last week.

Opponents of a deal in Riyadh and Tel Aviv will seek to undermine it in the meantime. But one of the hardest tasks will be to sell the deal to domestic audiences. A mutual animus is the one thing that binds hardliners in Tehran and Washington, and they will all have their say on the agreement. Perhaps with that in mind, the official reactions differ slightly, but potentially significantly, on the lifting of sanctions. The official Iranian response says “all the multilateral economic and financial sanctions by the EU and the unilateral ones by the US will be annulled” when a final agreement is reached. The US version speaks of phased relief.

The truth probably lies, as so often, somewhere in the middle. When sanctions are lifted, Iran’s oil minister Bijan Namdar Zanganeh has insisted that Iran can swiftly lift exports by 1mn b/d, although US bank Morgan Stanley and UK bank Barclays issued separate reports that argue against these expectations.

Should the return of Iranian crude still be a year away, this may allow time for demand to recover enough to warrant more Opec supply. Regardless, the organisation will soon be in a position where Saudi Arabia and Iran are both prioritising market share. Opec meets next on 5 June — well before the final, final deadline for a deal on Iran’s nuclear programme.

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