OIL PRICES fell sharply overnight after Iran agreed to give up some of its nuclear ambitions and key world powers pledged to suspend certain sanctions.
Brent crude oil shed $2.29 to $108.69 (£66.94) a barrel, its biggest daily drop in a month, while US oil dived $1.09 to $93.75 a barrel after the deal, which could thaw relations with the West.
The historic agreement brokered in Geneva with six nations means Iran has promised not to attempt to create nuclear weapons, and will dilute its stockpile of enriched uranium and dismantle some of its equipment that could be used to make atomic bombs.
As well as being a diplomatic coup for the negotiators, the thaw in relations lines up an immediate $7bn (£4.3bn) in sanction relief for the Middle Eastern nation, which the White House estimates will miss out on $30bn from lost oil sales in the next six months.
The agreement comes just over 100 days after Hassan Rouhani was sworn in as President, replacing Mahmoud Ahmadinejad.
“This is only a first step,” said Iran’s negotiator and foreign minister Mohammad Javad Zarif. “We need to start moving in the direction of restoring confidence, a direction which we have managed to move against in the past.”
Middle Eastern markets welcomed the deal, clinched in a Swiss hotel between representatives of the UK, US, France, Germany, China, Russia and Iran after five days of talks.
The Tehran Stock Exchange closed up 1.4 per cent, while the Iranian Rial strengthened more than two per cent against the US dollar, going a small way to counteract the punishing effects of an inflation rate in Iran of around 40 per cent.
To ensure Tehran sticks to the agreement, which will run for six months, the International Atomic Energy Agency will conduct daily inspections.
Foreign secretary William Hague, who represented the UK in the talks, told the BBC “it’s not surprising that people will be sceptical about any agreement”, but said Iran’s deal should be “good for the whole world”.
Israel’s leader Benjamin Netanyahu slammed the accord as “a historic mistake”, arguing that the friendlier stance of the West helps Iran take “a significant step towards obtaining the world’s most dangerous weapon”.
Iran holds the world’s fourth largest proven oil reserves and the world’s second largest natural gas reserves. The deal does not allow Iran to increase its oil exports, now just 1m barrels a day, but experts hope supplies will re-enter the world market if the deal holds.
“It’s looking more likely than not that the sanctions will be relaxed... It’s not totally unexpected, but it’s a big moment that will potentially change relationships for the whole region,” Ghanem Nuseibeh, founder of strategy consultancy Cornerstone Global Associates, told City A.M. yesterday.
Mehrdad Emadi, an economist at Betamatrix, said Western firms had already spoken to Iranian officials about restoring ties. “Companies have to be careful how they deal with Iran, because they need to maintain an operational relationship with their governments at home. Now they will feel more free to act,” he said.