Iran Nuclear Deal: What's in Store Ahead

The global crude oil market is already oversupplied currently, which is also evident from the recent weakness in prices. With Iran entering the market the gap will widen between supply and demand. Iran will have to give some discount in order to lure buyers for long term contracts. For other OPEC countries it will become difficult to maintain balance between the price and contracts.

The recent agreement on Iran’s nuclear program has triggered an explosion of commentary, analysis, spin, criticism, hyperbole, and advocacy about the in depth details of the deal. Before this there had been numerous attempts to negotiate with Iran when the Iranian dissident groups raised alarm over the country’s nuclear programme by revealing the existence of nuclear facilities that had not been declared to the IAEA (International Atomic Energy Agency).

Hassan Rouhani who had served as Iran’s nuclear negotiator 10 years ago now serves as the president. To end Iran’s international isolation, he promised constructive engagement with the international communities which focused at lifting economic sanctions.

The agreement between P5+1 countries (U.S., China, Russia, France, United Kingdom and Germany) with Iran was held at Switzerland in July 2015. The UN Security Council passed many resolutions imposing sanctions on Iran’s non-compliance regarding its safeguards agreement under the Nuclear Non-Proliferation Treaty (NPT). Iran first rejected the demand of Security Council that it suspend all uranium enrichment related processing activities, which led to downfall of Iran’s economy due to imposed sanctions.

The P5+1 countries wanted to prevent Iran from developing a nuclear weapon either by processing their own uranium or getting it from outside clandestinely. However, negotiators have allowed Iran to enrich uranium concluding that dismantling of entire infrastructure was completely unrealistic. They have put strict limits on Iran’s enrichment project, this included redesigning of plutonium producing water reactor and a highly intrusive inspection regime to prevent illegal usage of Uranium. The main aim was to extend the breakout capability- which is the time required to produce enough fissile material for one nuclear weapon.

For the resource dependent economy of Iran that have ratcheted up in severity due to the sanctions, there was an urgent need to regain the lost balance and influence in the Middle East region. Specifically the sanctions on the export of oil and gas and the import of technology required to process the energy resources had crippled the country’s economic situations. Sanctions related to other aspects such as human rights issues, support of terrorism and its missile programme will remain unaffected.

Under this agreement Iran will cut down the number of installed enrichment centrifuges from 19000 to 6000, out of which only 5000 will be spinning. Moreover, all of them will be first generation centrifuges and none of the advanced systems can be used for at least the next 10 years. Iran will have to put more Research and Development in order produce more efficient designs based primarily on the plans submitted to IAEA.

Fordow, Iran’s second enrichment facility, which is considered to be impregnable by air strikes as it is buried deep inside a mountain, will cease all the enrichment processes and be turned into a physics research centre. It will not produce or store the fissile material for the next 15 years. Iran will have to reduce its stockpile of low-enriched uranium from 10000kg to 300kg. The heavy water reactor at Arak will be redesigned and its core, which can be used to produce weapons grade plutonium, will be removed and destroyed and no other heavy-water reactor will be built for the next 15 years. Under the terms inspectors from IAEA will have access to inspect any facility that deemed to be suspicious.

The deal will make the Middle Eastern region safer. With more transparency in the programme the race for nuclear weapons among the region will stop that involves Saudi Arabia, Egypt and Turkey. Israel will certainly feel more secure.

Despite the fact that the oil prices will cripple down after lifting the sanctions, Russia who has an oil based economy, wanted this deal to take place. Iran with 4^th largest oil reserves in the world will enter the international energy sector, capture the market share of Russia and many other oil exporting countries and will push oil prices down. This surely will have a negative impact on the Russian economy. Russia’s relations with the West have deteriorated over the Ukraine issue and it sees preventing the emergence of another nuclear armed power near its borders as a vital national interest. Moreover, Russia considers Iran as a gateway to political and economic influence the Middle East Region. However, Russia can partially offset these losses of oil market share by selling arms to 

Iran once the U.N. arms embargo is also lifted.

For India, the oversupply of oil in the market will prove to be positive for importing countries like ours. Lower crude oil prices will bring down the import and subsidy bill for the government. India being a large importer of crude oil and imports around 80 per cent of its energy requirements, a dip in crude prices will not only positively impact the current account deficit (CAD) but also keep the inflation under control.

The recent agreement on Iran’s nuclear program has triggered an explosion of commentary, analysis, spin, criticism, hyperbole, and advocacy about the in depth details of the deal. Before this there had been numerous attempts to negotiate with Iran when the Iranian dissident groups raised alarm over the country’s nuclear programme by revealing the existence of nuclear facilities that had not been declared to the IAEA (International Atomic Energy Agency).

Hassan Rouhani who had served as Iran’s nuclear negotiator 10 years ago now serves as the president. To end Iran’s international isolation, he promised constructive engagement with the international communities which focused at lifting economic sanctions.

The agreement between P5+1 countries (U.S., China, Russia, France, United Kingdom and Germany) with Iran was held at Switzerland in July 2015. The UN Security Council passed many resolutions imposing sanctions on Iran’s non-compliance regarding its safeguards agreement under the Nuclear Non-Proliferation Treaty (NPT). Iran first rejected the demand of Security Council that it suspend all uranium enrichment related processing activities, which led to downfall of Iran’s economy due to imposed sanctions.

The P5+1 countries wanted to prevent Iran from developing a nuclear weapon either by processing their own uranium or getting it from outside clandestinely. However, negotiators have allowed Iran to enrich uranium concluding that dismantling of entire infrastructure was completely unrealistic. They have put strict limits on Iran’s enrichment project, this included redesigning of plutonium producing water reactor and a highly intrusive inspection regime to prevent illegal usage of Uranium. The main aim was to extend the breakout capability- which is the time required to produce enough fissile material for one nuclear weapon.

For the resource dependent economy of Iran that have ratcheted up in severity due to the sanctions, there was an urgent need to regain the lost balance and influence in the Middle East region. Specifically the sanctions on the export of oil and gas and the import of technology required to process the energy resources had crippled the country’s economic situations. Sanctions related to other aspects such as human rights issues, support of terrorism and its missile programme will remain unaffected.

Under this agreement Iran will cut down the number of installed enrichment centrifuges from 19000 to 6000, out of which only 5000 will be spinning. Moreover, all of them will be first generation centrifuges and none of the advanced systems can be used for at least the next 10 years. Iran will have to put more Research and Development in order produce more efficient designs based primarily on the plans submitted to IAEA.

Fordow, Iran’s second enrichment facility, which is considered to be impregnable by air strikes as it is buried deep inside a mountain, will cease all the enrichment processes and be turned into a physics research centre. It will not produce or store the fissile material for the next 15 years. Iran will have to reduce its stockpile of low-enriched uranium from 10000kg to 300kg. The heavy water reactor at Arak will be redesigned and its core, which can be used to produce weapons grade plutonium, will be removed and destroyed and no other heavy-water reactor will be built for the next 15 years. Under the terms inspectors from IAEA will have access to inspect any facility that deemed to be suspicious.

The deal will make the Middle Eastern region safer. With more transparency in the programme the race for nuclear weapons among the region will stop that involves Saudi Arabia, Egypt and Turkey. Israel will certainly feel more secure.

Despite the fact that the oil prices will cripple down after lifting the sanctions, Russia who has an oil based economy, wanted this deal to take place. Iran with 4^th largest oil reserves in the world will enter the international energy sector, capture the market share of Russia and many other oil exporting countries and will push oil prices down. This surely will have a negative impact on the Russian economy. Russia’s relations with the West have deteriorated over the Ukraine issue and it sees preventing the emergence of another nuclear armed power near its borders as a vital national interest. Moreover, Russia considers Iran as a gateway to political and economic influence the Middle East Region. However, Russia can partially offset these losses of oil market share by selling arms to Iran once the U.N. arms embargo is also lifted.
For India, the oversupply of oil in the market will prove to be positive for importing countries like ours. Lower crude oil prices will bring down the import and subsidy bill for the government. India being a large importer of crude oil and imports around 80 per cent of its energy requirements, a dip in crude prices will not only positively impact the current account deficit (CAD) but also keep the inflation under control.

Prior to this deal, India has been importing oil from Iran and paying back in Indian rupees, but the situation has now changed. India may now have to pay in Dollars which can have a sizeable impact on foreign currency reserves.

Exports from India includes automobile components, tools, motors and chemicals to Iran which will increase as the sanctions have now been removed. India will face a stiff competition from the European manufacturers as the value of Euro has depreciated in the last few years. Iran’s strategic position can provide India a gateway to the Central Asia which is a key to get foothold in the region.

The global crude oil market is already oversupplied currently, which is also evident from the recent weakness in prices. With Iran entering the market the gap will widen between supply and demand. Iran will have to give some discount in order to lure buyers for long term contracts. For other OPEC countries it will become difficult to maintain balance between the price and contracts.Prior to this deal, India has been importing oil from Iran and paying back in Indian rupees, but the situation has now changed. India may now have to pay in Dollars which can have a sizeable impact on foreign currency reserves.

Exports from India includes automobile components, tools, motors and chemicals to Iran which will increase as the sanctions have now been removed. India will face a stiff competition from the European manufacturers as the value of Euro has depreciated in the last few years. Iran’s strategic position can provide India a gateway to the Central Asia which is a key to get foothold in the region.

- Nikhil Sanghi