The coming glut of Iranian oil hitting the market will drive the oil price down below the twelve year low it has already reached. Yesterday’s $3 price hike is already being corrected with a 3% price drop today. Chinese demand will remain low. The oil sanctions against Iran were lifted after the International Atomic Energy Agency (IAEA) confirmed on Saturday that Iran had met the requirements for curbing their nuclear weapons programme. Iran’s government has ordered a 500,000-barrel per day increase in the production of oil from 1.1 million per day, and will increase this by a further 500,000 in coming months. Iran also has somewhere approaching 50 million barrels of oil in storage that it is seeking to sell. As well as the lifting of oil sanctions, Iran will gain access to bank accounts that have been frozen since the Shah was overthrown in 1979 believed to total in the region of $100 billion.
However, things are not all rosy for Iran. Just one day after the IAEA confirmed that Iran had met its nuclear commitments, and Iran had returned US citizens it had been holding hostage, on Sunday the US leveled new sanctions on Iran for its ballistic missile program test in December. The sanctions are limited to 11 Iranian-tied entities but they demonstrate a resolve to uphold the conditions of the agreement reached last summer. This may go someway towards placating Saudi Arabia and its allies, who fear the rise in power of Iran, and the conciliatory tone of the West towards their regional rival.