Scuttled Iran nuclear deal could be catalyst for oil price rebound
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.