As if problems in the Middle East, China and Greece weren’t already enough to spook global oil investors, now the Obama administration has announced it has reached a nuclear deal with Iran after months of tense negotiations.
The Wall Street Journal reports that oil prices fell Tuesday on the Iran deal announcement, as investors fear Iranian crude supplies will add to the global supply glut and drive prices down further. And of course, this comes after oil prices fell about 60 percent last year on slower projected growth and OPEC’s decision not to curtail production.
In the last few weeks alone, oil prices fell 20 percent, only to slightly rebound in the last few days. Prices could be pushed even further down once the particulars of any Iran deal are finalized and the country starts exporting oil.
Low oil prices are a good thing for consumers, but generally bad for oil producers. But falling oil prices also signal the vulnerability some economies are currently going through. Take Greece, for example. It’s a relatively small economy and consumer of oil, but it’s potential exit from the euro could drag down the currency — and with it the European economy. That would put more downward pressure on oil prices.
Same thing goes for China and its faltering financial markets. China already has a huge impact on oil prices because of its 1.4 billion people who are expected to be the main driver of future oil demand in the coming years. A slowdown there would have huge implications on world oil prices.
And that brings us back to Iran. As economist Daniel Yergin notes, “the possibility of a nuclear agreement and with it the lifting of sanctions on Iranian oil exports is rattling the market as positive and negative words alternate out of Switzerland.”
“This is where fear translates into fundamentals,” Yergin wrote in an oped. “Iran has substantial oil floating offshore stored in tankers … Iranian oil fields could put 400,000 to 600,000 barrels a day of additional production into the world market over several months.”
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