HISTORIC AGREEMENTLegitimate business with Iran

IULIAN MAREŞ (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 16 iulie 2015

Legitimate business with Iran

The Islamic Republic of Iran, on one hand, and the US, United Britain, France, Germany, Russia and China, on the other, two days ago reached a common solution to the problem of the "Iranian nuclear dossier", thus concluding over two years of negotiations and 12 years of international disagreements. The parties have signed a Common and Comprehensive Action Plan, and also agreed upon has been a roadmap concerning the subsequent collaboration between Iran and the International Atomic Energy Agency (AIEA).

The essence of the agreement is that, in exchange for the gradual elimination, starting in 2016, of the international sanctions that it is currently being subjected to, Iran will reduce its civilian nuclear program to a level that will make unlikely its diversion towards military purposes and will provide unrestricted access to AIEA inspectors, to check the implementation of the agreed measures.

Immediately after it became official, the deal was hailed by the leaders of the negotiating countries and has been described as a "historic agreement", while Israeli prime-minister, Benjamin Netanyahu, called it "a historic error". Regardless of the view, the agreement in Vienna was desired by all the parties involved in negotiations, not just for the benefits expected when it comes to military security, but especially because it will be followed by mutual economic benefits.

Iran will have easier access to the superior technologies needed to develop its industrial output even further (a ratio it already holds the 21st position globally on) and will return to the international financial circuit, without being forced to resort to complicated schemes and greedy intermediaries to elude the restrictions that have been forced upon it so far. If it sticks to the agreement, Iran can hope to be included in the G20 group as well.

The other signing parties, especially the European ones, will be able to direct quickly towards the Iranian market, of over 75 million citizens, their inventories they have been unable to sell due to the sanctions against the Russian Federation. In the medium and long term, "the new horizons" invoked on Tuesday by Iranian president, Hassan Rouhani, can mean Europe being supplied with natural gas and oil extracted from Iran, an something which Tehran has long desired, in order to free itself from Russia's extortion, through the small prices imposed it paid when buying Iran's natural gas, in exchange for its veto in the UN Security Council.

Germany's presence at the negotiating table is eloquent in that regard: it is not a major military power and it is not facing the threat of a military attack from Iran, but it is its main trade partner among the EU member states. The sanctions regime imposed on an international level did not prevent German diplomacy from being active in its relationship with Iran, especially at the land or local level, through frequent meetings between parliament members, mayors, businesspeople or intellectuals from both countries. Those kinds of interactions, formal and informal, have paved Germany's way towards its current status of massive exporter to Iran, but also an interested advocate of the resolution of the "Iranian dossier".

Unlike Germany, Romania dropped its traditional relationship with Iran, which began when Shah Reza Pahlavi was leading the Persian state (not after the instauration of the Islamic Republic) and, until 1990, it resulted in bilateral commercial trades of over 1 billion US Dollars a year. Subsequently, the political lack of interest and the domestic lack of diplomatic ability have worked in tandem with the international sanctions regime and have caused a drastic drop of the bilateral trade: 375 million US dollars in 2011, 340 million US dollars in 2012, 158 million US dollars in 2013, with the only constant element being the ratio between exports and imports which definitely is in Romania's favors.

After years of Romanian officials avoiding the receptions organized on its national day by the Iranian Embassy in Bucharest, they will from now have the ability to be present in that kind of events to promote Romania's economic interests.

Oil prices dropping more than 2%

The oil prices fell over 2% following the deal that Iran concluded concerning the country's nuclear program, which amplifies the expectations that Tehran will increase the deliveries of crude on a market that is already oversaturated, Bloomberg writes. The sanctions, which have been applied since 2012, have caused Iran's oil exports to decrease almost 50%, meaning that their revenues from the sale of oil have reached a 9-year low in 2014.

Prior to the agreement the Goldman Sachs Group and Barclays banks have estimated that Iran would need 6-12 months to increase the oil output by approximately 500,000 barrels a day.

In May, Iranian oil minister, Bijan Namdar Zanganeh, said that the country's oil output may increase by 1 million barrels a day in the next seven months.

The price of WTI oil, which is the benchmark on the American market, dropped 1.29 dollars on Tuesday to 50.91 dollars a barrel.

The price of Brent oil calculated on the London market, fell up to 2.1%, to 56.61 dollars a barrel.

Over the last year, oil prices have fallen over 45%, amid OPEC's strategy, led by Saudi Arabia, to increase output over the official cap, in an attempt to keep its market share against oil producers that are outside the organization.

The record output of the United States and of other important OPEC members makes Iran return to a market that is going through its biggest oversupply period of the last decades.

If the nuclear agreement allows Iran to sell the oil stored in its tankers, then the market impact could be quick, according to Bank of America, quoted by Mediafax. Iran has nine ships anchored at sea, loaded with approximately 19 million barrels, according to Bloomberg data.

"The return of the Iranian oil to the market will have a negative effect. We are waiting for information on the terms of the agreement, to see what it means for the market", said Edward Bell, analyst at the Emirates NBD PJSC bank, in Dubai.

Iran has the capacity to increase oil deliveries by 500,000 barrels a day as soon as the sanctions are lifted and by the same volume in the next six months, Zanganeh said in the OPEC reunion of June 5th.

If Iran meets its goals, then it will double the current oversupply on the estimated global market for the rest of the year.

According to data of the International Agency for Energy, the supply will exceed demand on average by 800,000 barrels a day in the second semester, if the OPEC maintains its current output levels. Oil inventories of the industrialized countries are seeing their highest surplus over the seasonal average in the last six years, data of the agency shows.