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On November 24, 2013, the United States and Iran reached a diplomatic accord in hopes of soothing tensions existing since the Carter administration. As part of the deal, Iran agreed to freeze its entire nuclear program in exchange for the U.S. to ease its trade restrictions. Relations between Iran and other nations have opened up since Dr. Hassan Rouhani took office on August 4, 2013. The previous leadership of Mahmoud Ahmadinejad led to uneasiness about the intention of Iran’s nuclear program, and the United States and Europe enforced strict sanctions in 2011 to cripple Iran’s petroleum market. The results were severe – 2012 exports dropped 39% compared to its 2011 total (1.53 MMBOPD from 2.51 MMBOPD) and the unemployment rate reached 15.5%.

Secretary of State John Kerry, speaking immediately after the accord, said the core sanctions architecture will remain in place and reiterated, although progress has been made, this is only the first step to what he described as a long and difficult process. As part of the agreement, Iran’s nuclear program must stop all operations and provide unlimited access to the United States and European nations. In turn, Iran’s sanctions on certain imports of gold and precious metals, exports of petrochemicals, and the auto sector will be suspended and provide an estimated $1.5 billion in revenue to the country.

Oil sanctions, however, are unchanged, meaning there will be no immediate increase in global crude supplies. Iran’s exports will continue to be limited to roughly 1 MMBOPD, resulting in monthly losses of $4.2 billion in revenue for the country.  According to the Energy Information Association (EIA), Iran holds the world’s fourth largest amount of proven oil reserves and the world’s second-largest natural gas reserves. Since sanctions were enforced on Iran, the United States rode its shale boom to become the world’s top oil producer and has reduced its dependence on foreign crude. Iran, in the meantime, has been forced to narrow its exporting partners to India, China and Korea.

The agreement is in place for the next six months with the option of a six-month extension. Kerry said other factors will play into future talks. “There’s nothing built on trust,” he said on CBS’ “Face the Nation.” “We’re not sitting here pretending that Iran is going to suddenly turn over a new leaf. We have to prove it. And our structure in this agreement, I believe, will adequately prove it.”

If Iran is able to re-enter the export market on a global scale, the possible oil increase will only add to the world’s oil market. In a report on November 12, 2013, OPEC’s current oil production (29.9 MMBOPD in October 2013) is greater than its estimated 2014 demand of 29.57 MMBOPD. Many analysts agreed a price war will likely occur if Iran’s export options are further loosened, but prices should remain stable in the short term. On the other hand, analysts predicted Middle East-based disruptions stemming from Iranian conflict keeps the pride per barrel an estimated $5 to $10 higher.

On a political level, the deal was not universally welcomed. Saudi Arabia and Israel both stressed their disappointment, as Israeli Prime Minister Benjamin Netanyahu said a “historic mistake” had been made. Enforcement against the nuclear program is “taking only cosmetic steps which it could reverse easily within a few weeks, and in return, sanctions that took years to put in place are going to be eased.”

US government officials also voiced disapproval. “It was strong sanctions, not the goodness of the hearts of the Iranian leaders, that brought Iran to the table,” Senator Charles E. Schumer, Democrat of New York, said Sunday.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.