The Iran nuclear deal could mean lower gas prices
The recently announced Iran nuclear deal could lead to lower gas prices. Aside from the cost of filling up your car being cheaper, the Iran nuclear deal has many other more important benefits that are imperative for avoiding the production of nuclear warfare.
The number of setbacks and delays had many doubting that the terms Iran nuclear deal would ever be reached and agreed on by all stakeholders.
The terms of the Iran nuclear deal weight strongly in favor of the United States, with a very low chance of nuclear war, and high chance of lower oil prices.
First let’s take a look at the main terms of the Iran nuclear deal:
The most important result of the Iran nuclear deal is that it makes the possibility of Iran developing a nuclear weapon in the next 25 years extremely unlikely. This is great news for everyone.
The purpose of the deal is to limit Iran’s nuclear program and to make sure Iran is keeping to their end of the deal by subjecting them to lots of invasive inspections.
In exchange for downsizing their nuclear program, Iran will have the economic sanctions lifted that have hindered it’s economy. Both Iran and the United States also get to avoid a war. This is also great news.
Iran has about 20,000 centrifuges (equipment used to enrich uranium into nuclear fuel to make a nuclear bomb). They’ll have to give most of them up (about 14,000) under this deal and the ones they will be allowed to keep will mostly be older and slower.
Iran will only be allowed to enrich uranium to 3.67% to be used for a nuclear power plant but nothing more. Uranium has to be enriched to about 90% to be used for a nuclear bomb.
Iran also has to give up a massive 97% of its nuclear stockpile of enriched uranium from 10,000 kilograms down to 300 kilograms.
Iran also has to rebuild its plutonium plant so that it can only make energy-grade plutonium instead of weapons-grade (nuclear bombs can be made with either uranium or plutonium).
All of this this means Iran will have a much smaller nuclear program, lacking the capability to create serious nuclear material.
If Iran decides to break the deal, they will have far fewer nuclear materials to build a bomb, and the older slower centrifuges mean that it will also take them much longer to do so.
So, if Iran is found to have broken the deal and be building a nuclear bomb, there is plenty of time for them to be stopped before the bomb is complete.
Will the Iran nuclear deal lead to lower gas prices?
Iran must fulfill its end of the deal by mid-October, and the International Atomic Energy Agency will confirm Iran’s compliance in mid-December. Once this is verified (likely to be around early 2016), the sanctions from the United States, United Nations Security Council and European Union will be lifted and Iran should start to see an improvement in their economy.
The lifting of Iran’s sanctions mean they will now be able to rejoin the global economy and export its commodities, including oil.
Oil prices dropped by 2 percent in response to the announcement of the deal, but swiftly bounced back when the market realized the process of Iran’s oil hitting the market won’t happen overnight.
Although the Iran nuclear deal could lead to lower gas prices, this could take a year, maybe longer, for Iran’s oil to be available to the global market once the sanctions are lifted and for a decent and long term drop in oil prices to be seen.
Iran currently has up to 40 million barrels of oil it can sell off, but production after this may be stagnant until it’s oil fields can get back to the levels it reached before the sanctions were placed.
Iran is the world’s fourth largest oil producer, but its oil production has suffered greatly from the sanctions. In 2008, Iran was able to produce up to 4 million barrels of oil a day. This fell to 2.8 million 2015.
It won’t be as simple as flicking a switch, as the sanctions imposed on Iran made it difficult to source parts and resources for the operation of it’s oil fields.
It has been reported that Iran would need up to $100 billion in foreign investment to bring their production back to the levels achieved before the sanctions were placed. But attaining foreign investment may prove to be a difficult task, as investors are likely to be wary about investing in Iran incase the nuclear deal falls through and the sanctions are re-imposed.
Iran will probably look to steadily sell its 40 million barrels over time to avoid oil prices to crash. Meanwhile, other countries could increase their own production for market share retention that would then drive prices down further.
Although it may take some time, if Iran can get its oil field’s production back to the pre-sanction levels, then the world should see lower gas prices due to the oversupply of oil in the global market.
The Iran nuclear deal has been lauded as a positive step for Iran’s economy, and averting the chance of a nuclear war. Lower gas prices are an added bonus!
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