Iran Nuclear Deal Bearish For Energy ETFs

July 14, 2015

A historic nuclear accord between Iran and world powers sent oil prices briefly reeling on Tuesday. Prices for benchmark West Texas Intermediate (WTI) fell as low as $50.88 before rebounding to trade flat on the session.

The deal, which was 20 months in the making, promises to lift sanctions that include an oil embargo on Iran in exchange for limiting the country's nuclear capabilities.

Iran's Part
For its part, Iran must “reduce its stockpile of uranium by 98 percent ... and keep its level of uranium enrichment at 3.67 percent―significantly below the enrichment level needed to create a bomb,” according to a report on the White House website.

At the same time, the country has agreed to reduce its number of centrifuges by almost 70 percent from current levels near 20,000. Iran would need “tens of thousands of centrifuges to create highly enriched uranium for a bomb,” said the report.

Thirdly, Iran will redesign the heavy-water nuclear reactor at the Arak site so it cannot produce weapons-grade plutonium, cutting off the third way it could potentially build a bomb.

Making sure that Iran follows through on its end of the deal, inspectors from the International Atomic Energy Agency (IAEA) will monitor “every element” of the country’s nuclear program.

“If IAEA inspectors become aware of a suspicious location, Iran has agreed to ... allow inspectors to access and inspect any site they deem suspicious,” assured the White House.

The End Of Sanctions
Once IAEA inspectors are confident that Iran has begun to dismantle its nuclear infrastructure―likely by the end of the year―most of the financial and economic sanctions on the country will be lifted. However, sanctions on weapons trade may last for several more years, and broad-based sanctions may be reinstated at any time should Iran fail to uphold its end of the bargain.

One area where Iran has been desperate to see sanctions relief is the oil industry. The country’s production has been crippled by the combined embargoes of Europe and the United States. Iranian officials hope that once sanctions are officially lifted, exports can be ramped up quickly, potentially by as much as 1.2 million barrels per day.

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