When it comes to the Islamic Republic, everything is dramatic and serious. Last Saturday was no ordinary day in Iran as many of the international sanctions that have strangled the country’s economy over the last decade were lifted after UN inspectors concluded that Tehran had dismantled significant elements of its nuclear program.
The news that Iran had met its side of last year’s landmark nuclear deal came just hours after the announcement of a prisoner swap of five Americans including Washington Post reporter Jason Rezaian who has been jailed in Iran for 18 months. The U.S. is to release seven individuals — one Iranian and six dual-nationals in return.
The surprise prisoner swap would have been unthinkable even three years ago and is an indication of just how far relations between Washington and Tehran have come after years of hostility between the two countries that have shaped the Middle East since Iran's Islamic Revolution of 1979 and since nuclear talks began in earnest in 2013.
Oil and Finance Sanctions Removed
The main thrust of the sanctions relief is in crucial sectors such as oil and finance and this will allow Tehran to re-enter the global economy. As part of the deal, tens of billions of dollars’ worth of Iranian assets estimated by the U.S. at around $50bn will now be unfrozen and global companies that have been barred from doing business there will now find a market for everything from cars to airplane parts. The sanctions had included banking, steel and shipping which closed out Iran, a major oil producer, from international markets for the past five years. As for Tehran, it has already announced plans to buy 114 civil aircraft from European aircraft maker Airbus.
Following Washington’s move, the United Nations also lifted its restrictions, as did most European countries including the most significant sanction-- the embargo on oil imports.
In fact, the oil industry is bracing itself for an increase in Iranian production with Tehran claiming it can swiftly boost production and exports by 500,000 barrels a day. This comes as relations between Iran and Saudi Arabia, Opec’s largest producer and de facto leader, have soured and threatens to add to the glut of oil that has already pushed prices to a 12-year low of less than $30 a barrel.
Iranian officials have said they expect to ramp up production by 500,000 barrels a day within six to seven months of the removal of sanctions, and to return to 3.4m barrels a day within 12 months. Iran’s crude exports have fallen to around 1m barrels a day, compared with a pre-sanctions high of more than 3m barrels a day in 2011.
Although some market observers say Iran’s full return to the international markets is already reflected in low crude prices, others believe it could exert further downward pressure. Shipbrokers say there are about 24 large oil tankers, which can hold as much as 50m barrels of oil, waiting off the coast of Iran ready to resume business.
Tehran has noted that it is keen to sell more oil to its traditional customers, from Asian buyers such as those in India that it continued to trade with under sanctions to former partners in Europe. According to one person in the know, agreements for sales of around 500,000 b/d collectively are already in place for Turkey, India and South Africa among others, adding that Tehran also hopes to send around 200,000 b/d to buyers in Greece, Spain and Italy.
Republicans Dismayed
Not everyone in Washington is pleased with the lifting of the restrictions on Iran and the opening of more favorable diplomatic channels between the two countries. Despite Washington maintaining separate, less comprehensive sanctions on Iran over its missile program, the thaw is viewed with deep suspicion by U.S. Republicans as well as American allies in the Middle East, including Israel and Saudi Arabia.
The U.S. will also continue to maintain other significant sanctions on Iran related to its support for terrorism and its human rights record, with 200 Iranians staying on the sanctions list. These measures include penalties on international businesses and banks that do business with companies controlled by the Iranian Revolutionary Guards — the sort of secondary sanctions that could still make some European groups reluctant to re-enter the Iranian market.