The western world was greeted yesterday morning by various news alerts that a historic agreement had finally been reached between the P5+1 (US, UK, France, Russia, China & Germany) and Iran over the latter’s nuclear programme. This agreement comes after twelve years of failed talks, a stringent UN and EU sanctions regime and varying levels of sabre rattling, grandiose rhetoric and aggressive discourse. Primarily, all of this was driven by high levels of bitter antipathy between the United States and the leadership of Iran but was often stoked by Israel, Saudi Arabia and other opponents of the deeply conservative Iranian state. President Obama has long championed the benefits of diplomacy and engagement rather than containment and isolation as favoured by his predecessor. From the moment he took office in 2008, Obama has sought to salvage a relationship with Iran in the hope that it would help bring about a more peaceful Middle East and remove the spectre that the US saw itself as a ‘global police force’. The agreement yesterday will, if approved by US Congress, lift economic sanctions on Iran in return for long term curbs on its nuclear program. The West has long suspected that the Iranian leadership has been looking to develop nuclear weapons.
There is no doubt the deal is historic and much like US rapprochement with Cuba, the deal will be an integral part of the Obama Presidential legacy. It is a humbling feeling when such a geopolitical event will have an effect on almost every international industry – shipping is no exception. Some of the sanctions imposed have meant that there has been heavy prohibition of the sale of oil and petrochemical products. Before the sanctions Iran produced 10% of world oil output and totalled 21% of OPEC’s production. According to OPEC, Iranian crude oil production reached 3.2 million barrels per day in 2010 but last year this had fallen to 2.8 million barrels per day. Due to sanctions, production and exports fell heavily with almost all exported crude going to China and India who did not support the sanctions. In terms of petrochemical products, Iranian petrochemical exports, according to Clarksons Platou Specialised Products data, totalled 6.5 million tonnes in 2011 and has subsequently reduced to 5.6 million tonnes in 2014. Clearly, the new deal could release roughly 1 million tonnes of exports back into the market, so there certainly will be an impact although maybe not at the same scale that many might assume. Reports emanating from Iran suggest that there is a drive to increase petrochemical capacity and several projects have been announced, but it is unlikely that these have been built yet due to a lack of parts needed from other regions. Therefore, looking further ahead the market may find itself flooded with key petrochemicals such as polyethylene and methanol (according to ICIS) in the not too distant future.
These are all interesting developments but any ramp up in production and exports is expected to be gradual and is far from set in stone yet. Before the deal can be implemented it must be ratified by the Republican controlled US Congress within 60 days who will likely vote it down. President Obama has already said he will veto this but this can subsequently be overturned by Congress with a 2/3 majority in both houses. Although political pundits expect this is unlikely to happen as a large number of Democrats would have to go against their President for it to happen. The reaction around the world has been positive on the whole, apart from the notable exception of Israel and perhaps Saudi Arabia (although not publicly). All this said, the deal looks set to be upheld as long as both parties keep to their terms and thus there is little doubt that it will be a welcome change to the Specialised Products markets. Lastly, with the global oil price environment already uncertain and the likelihood of Iranian barrels flooding the market could this further boost seaborne petrochemical trade? Time will tell, and the change will be gradual but all will be watching with baited breath!