Global oil prices will remain under pressure this week after Iran said it was ready to add half a million barrels a day to crude exports just hours after international sanctions were lifted this weekend.
Iran’s president, Hassan Rouhani, hailed a “glorious victory” as his country relished reconnecting to the global economy following the formal announcement late on Saturday that sanctions were ending thanks to moves by Tehran to scale back its nuclear programme.
Iran returns to international oil markets with prices hovering near 12-year lows because of a supply glut and waning global demand as economic growth falters. The prospect of Iran flooding the market with more crude had already dented prices last week, pushing Brent crude below $30 a barrel.
Echoing Friday’s sell-off on commodity and global stock markets, shares in the Middle East tumbled on Sunday. Saudi Arabia’s Tadawul index was down more than 6% as the latest drop in crude prices intensified worries over the economic outlook for the major oil producer. In Egypt, shares extended last week’s losses on broader worries over emerging markets and the EGX 30 index was down 3%.
The lifting of sanctions includes an end to an EU embargo on imports of Iranian oil and on Sunday the country confirmed it was geared up to raise exports.
“With consideration to global market conditions and the surplus that exists, Iran is ready to raise its crude oil exports by 500,000 barrels a day,” the deputy oil minister, Amir Hossein Zamaninia, was quoted as saying by the Shana news agency.
But Rouhani also suggested the new era could reduce Iran’s dependence on oil. He described the deal as a “turning point” and an opportunity for Iran’s economy to cut its “umbilical cord” to oil while prices were low.
Oil prices have almost halved in the last six months amid worries about oversupply and softening demand on the back of a weaker global economic outlook and a downturn in China, the world’s biggest energy user.
Analysts noted that the return of Iran to oil markets could have relatively little impact on prices over coming days given it was largely anticipated.
“Oil could stabilise as the lifting of Iran sanctions is surely now reflected in the low price and increasingly the focus will turn to the prospect of further cuts in non-Opec supply, particularly from the US,” said Caroline Bain and Julian Jessop at the consultancy Capital Economics.
The ending of sanctions also means Iranian banks will soon re-establish links with the European financial system, and its businesses can trade with overseas partners.
The UK’s foreign secretary, Philip Hammond, highlighted the potential economic impact as he welcomed the nuclear deal with Iran and the lifting of sanctions.
“The UK has played a central role, and I hope British businesses seize the opportunities available to them through the phased lifting of sanctions on Iran. The future is as important as the landmark we’ve reached today,” Hammond said in a statement.
The French-listed aircraft maker Airbus also looks set for a significant boost from the sanctions ending. Iran said on Saturday that it planned to buy 114 civil aircraft from the company. A deal for 114 planes would be worth more than $10bn at catalogue prices, depending on the type of aircraft, news agency Reuters reported.
This article was written by Katie Allen, for theguardian.com on Sunday 17th January 2016 11.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010