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Historic Deal With Iran Opens Up Oil Industry

Historic Deal With Iran Opens Up Oil Industry

Iran and six major world powers have reached a historic deal that would limit Tehran’s nuclear program in exchange for a lifting of crippling economic sanctions on the Islamic Republic.

The participants at the talks were all smiles after the accord was reached on July 14, and the deal amounts to a thaw in relations between the United States and Iran for the first time since the Iranian Revolution in 1979.

The deal was not welcomed by everybody. Gulf Arab states, which practice Sunni Islam, also are concerned about Shi’a Iran’s rising influence in the Middle East. They have argued that releasing Iran from the sanctions would enrich Tehran to bankroll its sectarian allies in the region, including Lebanon, Syria and Yemen. Related: The Multi-Trillion Dollar Oil Market Swindle

In Jerusalem, Prime Minister Benjamin Netanyahu has long opposed any deal with Iran, saying it’s determined to destroy Israel and can’t be trusted to adhere to a deal that would deprive it of nuclear weapons. He called it a “historic mistake for the world.”

The oil industry, on the other hand, is eager to enter Iran and invest in its oil and gas reserves, which have largely been off limits for years. Iranian Deputy Oil Minister Mansour Moazami says his country’s exports of crude eventually could nearly double from the current 1.2 million barrels per day to 2.3 million barrels per day after sanctions are lifted.

But Gary Hufbauer of the Peterson Institute for International Relations, an economics think tank in Washington, says adding more crude to an already overflowing oil market could bring down the average global price of oil from the current level of between $50 and $60 per barrel to $35 per barrel.

Nevertheless, the agreement with Iran was a major coup for both President Obama and Iranian President Hassan Rouhani, who was elected two years ago having promised to be less doctrinaire, and more pragmatic than his predecessors, in order to free his country from its political and economic isolation. Related: Top 5 Oil Producing Countries Could See Production Peak This Year

Despite their success, even Obama and Rouhani face obstacles. Hard-liners in Iran, especially the leaders of the Revolutionary Guard, are sure to be a hard sell, given the decades of enmity between Tehran and Washington.

As for Obama, he must win over many Republicans in the U.S. Congress who believe any deal would only postpone Iran’s eventual development of a nuclear weapon.

After a 60-day review, Congress can reject the deal. Obama can veto the rejection, and overriding the veto would require the support of two thirds of all members. Even if Obama wins, he still must fight.

At the White House, the U.S. leader made an early-morning televised statement, broadcast to Iran as well as the United States, evidently aimed at persuading Congress and the American public that the agreement was “not built on trust. It is built on verification.” But he stressed, “I will veto any legislation that prevents the successful implementation of this deal.” Related: Methane Hydrates – Larger Energy Opportunity Than Shale?

Under the agreement, the six world powers – Britain, China, France, Russia and the United States, plus Germany – recognize Iran’s program is peaceful, not meant to create weapons, and that these nations respect Iran’s right to a nuclear technology in line with international standards. As a result, Iran may develop the technology under the guidance of the United Nations.

In Paris, French Prime Minister Manuel Valls said the deal made major progress in relieving the enmity between Iran and the West. “There’s been a tension with Iran for ten years or so,” he said. “Of course, it’s not over, but a very important step has been taken.”

By Andy Tully of Oilprice.com

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