Iran's nuclear deal could knock $5-10 off the oil price, says Bank of America

Iran’s nuclear deal could result in the potential return of up to 0.7m barrels of oil in production over the next 12 months, adding downside pressure on forward oil prices of $5-$10 per barrel, Bank of America Merrill Lynch said in a note.

According to the bank’s commodity research team, as sanctions are unwound, the National Iranian Oil Company would ramp up production to pre-2012 levels of 4.5m barrels of liquids by 2020 and maintain this with limited development of new fields.

It said the gradual and partial removal of sanctions could imply around $200bn in annual import demand by 2020, from $80bn now.

“We believe UAE and Turkey are best positioned to enjoy potential upside in Iranian trade volumes. The deal should also support South Caucasus via freer trade, but could have some negative spill-over effects on Russia via lower oil prices or eventual competition to supply gas to Europe. Still, sustaining any boost in activity would require Iranian macro reforms.”

In terms of stocks that could benefit from the deal, it said UAE-based Emaar Properties could be a key beneficiary from greater Iranian property demand in Dubai.

The deal could also be positive for refiners such as Turkey’s Tupras Oil & Gas, along with EU/Turkish autos, civil aerospace and Turkish and MENA banks.

Commenting on the deal more generally, it said it could help Iran’s domestic demand rebound rapidly especially if oil exports normalise to pre-2012 levels.

Bank of America’s research suggests the Iranian economy would have matched the size of Saudi Arabia were it not for the sanctions.

“We think the deal is likely to bring macro benefits to Iran in three stages: cash, trade, and investment.”