A landmark joint statement on Jan 16 heralded the end of sanctions on Iran which have prevented the oil rich country from exporting its output. The agreement immediately came into effect following a confirmation from the U.N. atomic agency.

Following the end of sanctions, the international oil glut is expected to intensify. This is expected to place further pressure on oil prices already undergoing a major slump. Stocks from several sectors are expected to gain as a result and it would be wise for you to add them to your portfolio.

Landmark Agreement

The nuclear agreement, concluded between Iran, the permanent members of the U.N. Security Council and the EU, has substantially reduced the country’s nuclear capability. The conditions met by Iran for the agreement included shipping out nuclear fuel stockpiles, dismantling centrifuges used to enrich uranium and removing the reactor core at a plutonium facility located close to Tehran.

These steps will result in a situation where it would take the country nearly a year to produce enough fuel for a nuclear weapon. Additionally, the country’s activities related to nuclear material and energy will remain under strict oversight for almost a decade. Only after that period will it be able to increase production of nuclear fuel

Price War Likely?

Possibly the most important outcome of the deal is the removal of embargoes on oil exports. An additional 500,000 to a million additional barrels of oil from Iran will inflate the supply glut. Prices had fallen considerably on Jan 15, a day before the announcement of the agreement. WTI Crude plunged 6.1% to settle at $29.42, its lowest closing level since Nov 2003. Crude oil fell almost 0.1% to close at $31.01.

An immediate decline seems surprising considering the event had mostly been priced in. However, the country is likely to offer generous discounts to lure customers. Also, as its relations with competitor Saudi Arabia worsen, a price war is likely to ensue.