Thursday, April 2, 2015

Geopolitics: Why The Iran Deal Is Something To Celebrate

(Drivebycuriosity) - Finally, the Iran Deal is here. After years of negotiations between the West (US & European Union) and the government in Teheran, the opponent came to an agreement: Iran will constrain her nuclear program, in return the West will lift the sanctions against the country. I suppose the deal will be a boost for the global economy by curbing oil prices and could even help to stop the advance of Isis.

1. In the coming months the deal will eliminate step by step the sanctions against Iran, which had been curbing oil exports from this important OPEC member. Since 2006 sanctions against Iran have been reducing Iranian oil exports hence curbing the global oil supply. As a result of the ongoing Iran conflict there has been less oil on the markets making it more expensive.

The conflict also nurtured speculation on a possible war against Iran which could have lead to massive disruptions of the oil supply because it could also have harmed exports from Saudi Arabia and other exporters from the mideast region. For years the oil price had a significant Iran premium, some additional dollars, because of reduced oil exports and the risk of a war.

I expect that  Iran`s return on the global oil market will increase global oil supply and put additional pressure on the oil price, in other words: The additional supply from Iran will make oil cheaper. Rising Iranian oil exports might also be a substitute if the US oil production will shrink because some American oil wells became unprofitable at prices below $50. Cheaper oil will work like a tax reduction for the global economy: Consumers have more money to spend for other goods & services, companies (especially in the transportation sector) have less energy cost.

2. Teheran has a huge interest to fight Isis because the country itself is threatened by this organization (nytimes). Being a neighbor gives Teheran opportunities to strike against Isis. Iran is already joining Iraqi forces to fight the terrorist organization. The Iran treaty could help to counter the Isis offensive before it spreads to other regions.

Welcome Iran Deal.

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