A Historic Mistake?

| November 25, 2013 | 0 Comments

Middle EastSomething remarkable happened in the realm of global politics this weekend… 

A historic deal was struck with Iran in regards to their highly controversial nuclear program. 

As you may know, Iran has been at odds with the global community for nearly a decade.  In recent years, tensions have mounted as experts believed the rogue country was close to having the wherewithal to build a nuclear bomb. 

However, Iran claims to have no interest in a nuclear weapon.  Iranian officials claim their uranium-enriching program is for peaceful purposes only.

Of course, there are plenty of skeptics…

Given the country’s highly secretive and confrontational nature, the rest of the world isn’t buying it.  And that’s precisely why the US enacted hefty sanctions on Iran in 2010.   The European Union even authorized an oil embargo on Iran in 2012, which stands to this day.

Relations between Iran and the rest of the world have been so tense that many believed a military confrontation was imminent.  In fact, Israel performed massive aerial war games over the Mediterranean this past summer.   Many experts believed the display was in preparation for a strike.

This weekend’s surprising deal adds a new wrinkle to the saga…

According to various news agencies, Iran is agreeing to a halt of uranium enrichment above 5%.  What’s more, Iran will neutralize its stockpile of 20% enriched uranium and allow UN inspectors access to all nuclear facilities.

Since the country is currently enriching to 20% (which is close to weapons grade), this new bargain is a huge step in the right direction. 

In return for the concessions, the hefty sanctions currently in place will be lightened by an estimated $6 billion.  And as negotiations continue with Iran in coming months, we could see further easing of trade restrictions.

So what does all this news mean for the price of oil?

Sources say the 1.5 millions barrels a day of Iranian crude that are currently off the global market due to the EU oil embargo are not a part of this weekend’s deal.

However, the fact that Iran is suddenly becoming more amicable will help alleviate much of the bullish pressure this situation puts on oil prices.

In fact, investors are already seeing a knee-jerk reaction to the price of crude this morning.  WTI is trading down $1.45 a barrel to $93.39 in the pre-market session.

While this development sounds undoubtedly bearish for oil, take a look at this…

Israeli Prime Minister Benjamin Netanyahu is calling this weekend’s deal a “historic mistake”.  

It comes as no surprise that Israeli officials are highly mistrusting of Iran.  As you may be aware, Iran has repeatedly threatened to “wipe Israel off the map.”

So while this weekend’s deal may decrease Middle Eastern uncertainty at first sight, it may actually do the opposite in the long run.  In fact, multiple news reports claim Netanyahu is already renewing warnings of military action despite this weekend’s deal.

What should you make of all this?

The Iranian nuclear situation is extremely complicated.  While this weekend’s surprise agreement is, in my opinion, a step in the right direction, not everyone feels the same way.

We may see a temporary dip in oil prices, but long-term, Middle East uncertainty still remains.

Until Next Time,

Justin Bennett

Tags: , ,

Category: Energy

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.