The Iranian Deal and its Global Implications

The U.S. and the EU agreed on Thursday to lift nuclear-related sanctions against Iran in exchange for Iran’s compliance with international inspections and restrictions on its ability to enrich weapons-grade material. The removal of these sanctions could assist in reviving Iran’s economy, which has stagnated in post-sanction years.

A more comprehensive outline of the deal is pending completion, but will be further elaborated by the end of July.  Iran would have to destroy the majority of its nuclear centrifuges, dispose of the majority of its uranium stockpile, and submit to expansive inspections by the International Atomic Energy Agency (IAEA). In return, Western leaders will lift its nuclear-related economic sanctions upon the IAEA’s determination of Iran’s compliance with the deal’s measures. Not all of Iran’s sanctions will be lifted, as the sanctions related to long- range missile development, terrorism, and human rights violations will remain in place.

The approximated six months before sanctions begin to be lifted could be attributed to the various procedures involved. The agreement would have to gain the support of legislative and other legal bodies in each home country, for example, in the U.S. this may take between 30 to 60 days for Congressional approval. In addition, the implementation could take months, as Iran will have to comply with the various processes involved in changing its existing nuclear program.

Iran stands to gain economically from the completion of the terms in the nuclear deal, as it would release Iran from some U.S and European Union sanctions. These sanctions froze the assets of Iran’s central bank and businessmen with ties to the nuclear program. In addition, the sanctions banned interaction with the Iranian banking system and prevented EU members from the purchase or transport of Iranian oil. However, many companies and banks are reluctant to develop business ties with Iran, as they may be negatively impacted if Iran does not fully comply with all measures established by the deal.

The sanctions in place have caused Iran’s oil exports to drop by two-thirds from 2011 to 2013, costing Iran billions of dollars in potential revenue per month. Iran’s economy has suffered. As Iran’s GDP fell, inflation rose by more than 40 percent, and Iranian citizens faced increased expenses to buy food and gas. Foreign investment was hampered by sanctions and unemployment increased due to the lack of economic growth; meanwhile, countries such as India and China that owe Iran billions were not permitted to pay their debts. The lifting of sanctions could allow Iran to recover over $100 billion in frozen oil profits, allow for Iran to export oil globally, and allow its banking system to conduct business with Europe.

A significant point of the U.S. - Iran nuclear deal is that it could open up Iran’s vast crude oil reserves, which would allow for the country to increase its crude production and exports. This could increase the likelihood of an ‘era’ of low oil prices. However, it will not be as likely to occur until 2016, when sanctions could be lifted at the earliest, and it may be a while until Iran is producing at the same level it was pre-sanctions. Iran has the fourth- largest proved reserves in the world, but due to sanctions in recent years, foreign investment has declined. It will be interesting to see how Iran responds to sanctions being lifted and how this deal will impact the global oil industry.