Scut­tled Iran nu­clear deal could be cat­a­lyst for oil price re­bound

The Pak Banker - - 6BUSINESS -

With oil prices plumb­ing mul­ti­year lows, it's not clear how much more down­side could be left in the com­mod­ity. At the same time, sen­ti­ment on black gold is ter­ri­ble, with ev­ery day last week bring­ing another dour piece of news for oil from slow­ing China growth to ris­ing rig counts. What the mar­ket needs in or­der to start to turn higher is a cat­a­lyst. The Ira­nian Nu­clear deal could be that cat­a­lyst.

Op­po­si­tion to the Ira­nian deal has been in­tense in the last few weeks. While it is not clear that op­po­nents can muster enough sup­port to cre­ate a veto-proof block­ing of the res­o­lu­tion on the deal, there is clearly sig­nif­i­cant op­po­si­tion. All 54 Repub­li­can Sen­a­tors have vowed to block the deal as have two Democrats so far. A lit­tle more than 20 Democrats re­main un­de­cided, so the vote is very much up in the air. If the vote goes against the Pres­i­dent, oil could spike 10 per­cent overnight in an­tic­i­pa­tion of Ira­nian sanc­tions re­main­ing in place.

Adding to the drama, the As­so­ci­ated Press pub­lished a re­port ear­lier last week in­di­cat­ing that un­der the deal, Iran will be per­mit­ted to use its own in­ves­ti­ga­tors to in­spect the con­tro­ver­sial Parchin site. Parchin has been tied to nu­clear weapons test­ing more firmly than any other Ira­nian site. The ar­ti­cle was orig­i­nally thought to be a big blow to the Obama ad­min­is­tra­tion, but the ar­ti­cle was quickly crit­i­cized for in­ac­cu­ra­cies. There have been re­ports that the AP's in­ves­ti­ga­tion was flawed and based on false doc­u­ments, so the fall­out could be lim­ited.

The broader point is that the Ira­nian deal is very con­tro­ver­sial and any num­ber of pos­si­ble rev­e­la­tions could cause the agree­ment to un­ravel. Other rev­e­la­tions from Is­rael, Saudi Ara­bia, and other re­gional pow­ers could both be enough to sink an agree­ment. For in­stance, if Saudi Ara­bia or Is­rael were to come out and make a dras­tic pro­nounce­ment re­lated to cre­at­ing high pro­file nu­clear weapons pro­grams of their own if the deal goes through, then it would al­most cer­tainly cause a lot of dis­com­fort and re­think­ing in Washington.

Of course, it's not clear even if the deal does go through how long it would take be­fore Iran could be­gin ex­port­ing oil again, but the is­sue here is sen­ti­ment rather than facts. There are no sub­stan­tial Ira­nian oil ex­ports to­day and there won't be next week or even next month. But the mar­kets are look­ing at slow­ing growth and stub­bornly high pro­duc­tion and pan­ick­ing. That panic has driven prices lower and a scut­tled Ira­nian deal could lead to a re­newed level of san­ity in the mar­kets.

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