The bottom line for business and politics resulting from the breakthrough deal forged by Iran and six of the most powerful countries in the world, just before most markets closed for Good Friday, is a double-edged sword that can cut both ways.
For business, the near-term ramifications fall right smack at the core of economies: prices. That’s because the deal, once made final next June, will eventually lift the economic sanctions that had been imposed on Iran, allowing the Islamic country to once again sell its black gold on the global markets. Iran was the fifth largest oil producer before the sanctions over its uranium enrichment program curtailed its oil exports.
The sanctions, primarily by the US and its closest ally, the European Union, blocked almost 1.5 million barrels per day (bpd) of Iranian oil from trading on the global market starting in 2012. Prior to the sanctions, Iran was exporting 2.5 million bpd.
On the political side, as US President Barack Obama succinctly put it when he went live on television, praising and promoting the initial deal, what the negotiators have so far achieved will open the doors to a better chance for peace and likely ease the volatile geopolitics in the Middle East.
The framework agreement is far from perfect, and critics abound from among the political adversaries of the Obama Administration in the US Congress to Israel. This nation has been portraying itself as that which is most vulnerable once Iran is allowed to flex its geopolitical muscle in the Gulf region and pursues its nuclear ambitions for industrial purposes.
Oil markets tumbled in reaction to the deal penned in Lausanne, Switzerland on Thursday. Benchmark crude dropped as much as 5 percent, and finished trade with a nearly 4 percent loss to about $55.
Analysts now expect world crude markets will feed on this development through the rest of the second quarter, until a definitive accord is signed at the end of June.
Once a final deal is cut between Iran and the P5+1 global powers (the US, France, Britain, Germany, Russia and China), all sanctions linked to the Iranian nuclear program will be lifted. That is according to Tehran, referring to the United Nations Security Council resolutions, as it highlights the benefits accruing to it at the end of the day.
In the final analysis, the agreement tries to strike a balance between war and peace, not only in the Middle East but the rest of the world. The US and its allies will continue to look at Iran with a certain degree of distrust as a significant source of finance for terrorist groups.
What makes the initial deal a welcome development in the global quest for peace is that world leaders are willing to cast off their skepticism by going for a diplomatic solution. This assumption alone is more than enough ground for critics to stand aside and give peace a chance.
In war and in peace, market forces are influencing commodity prices in the four corners of the world. Yet, market economies thrive more on a level playing field that can be disrupted by armed conflict.
The equilibrium in oil prices is somewhere between $65 and $85 a barrel, the sweet spot in which the consumer is assured that prices of basic commodities won’t spike on higher logistics costs and the producer is assured of equitable returns.
Right now, there is a strong case to support the Lausanne deal to its fruition. Advanced economies are still on a precarious road to recovery. A more lasting peace is what the world needs at this point to achieve a certain degree of equilibrium. The chance is here. Seize it.